The showdown over data centers is taking a new turn. This week, Texas Governor Greg Abbott announced a data center pause in order to audit how they’ll impact water supplies and the power grid. This comes weeks after New York issued a moratorium.
Not long ago, Governor Abbott was declaring Texas the center of the AI boom. But with his re-election bid under threat, he’s now responding to the radical shift in anti-data center sentiment.
So what will this mean for other states? And more importantly, will states use their pauses to find creative ways to upgrade grids and deploy clean energy?
Then, the end of the corporate net-zero era. AI load growth is blowing up climate goals in real time and tech companies are scrambling to explain their emissions increases. Meanwhile, many of the biggest corporate players are walking away from their targets.
But could this actually be a good thing for corporate decarbonization? We’ll look at more effective ways for companies to accelerate clean solutions.
Get your ticket to Latitude Media’s Flex Summit in Austin, Texas on October 14-15.
Credits: Co-hosted by Stephen Lacey, Jigar Shah, and special guest Nate Adams. Produced and edited by Stephen Lacey, Sean Marquand, and Anne Bailey.
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Transcript
Stephen Lacey: From Latitude Media, this is Open Circuit. The bipartisan data center revolt is taking a new turn. Texas Governor Greg Abbott and New York Governor Kathy Hochul probably don’t agree on a whole lot politically, but they do agree on this: data centers are moving too fast.
There are 1800 data center projects sitting in the Texas grid queue right now. That’s more than five times the state’s peak electricity demand. In New York, developers are chasing enough power to cover a third of what the whole state uses in a year. And both governors have paused new data center developments in their states so they can assess impacts to the water in the grid. So are more states going to follow? And more importantly, what will states do with these pauses to tackle grid constraints and rising electricity prices?
Then, AI load growth is blowing up climate goals in real time and tech companies are scrambling to explain their emissions increases. And it’s certainly not just the tech industry. Many of the biggest corporate players are walking away from their targets as well. But could the death of the net zero era actually be a good thing for corporate decarbonization? That’s all coming right up.
Welcome to the show. I’m Stephen Lacey. I’m the executive editor at Latitude Media. Jigar Shah is the co-managing partner at Multiplier. How are you, sir?
Jigar Shah: I’m fantastic.
Stephen Lacey: I checked after you corrected me on moratoriums versus moratoria. And you can use both, turns out.
Jigar Shah: Well, I mean, I’m not surprised you editor.
Stephen Lacey: I had to check. Are you slowing down in August at all?
Jigar Shah: No. No. I am what you call fascinated. The popcorn is popping. I love it. Everybody is doing all sorts of crazy stuff.
Stephen Lacey: Yeah. And you’re doing like two podcasts a week and 14 LinkedIn posts a week. It doesn’t seem like you actually slow down.
Jane Flegal: Yeah, candidly it’s a bit much.
Jigar Shah: There’s no shortage of things to comment on these days.
Stephen Lacey: Yes. And here with us is someone who has no shortage of takes on all the things we’re here to comment on is Dr. Jane Flegal. She is a senior fellow at the States Forum and a senior fellow at the Searchlight Institute. Hey Jane, how’s it going?
Jane Flegal: Hi guys. Yeah. A shortage of takes is not something that I’ve ever been accused of, but I’m so excited to be here today.
Stephen Lacey: What’s occupying your mind share these days?
Jane Flegal: So many things. Can we have clean energy abundance? How do you deal with populist anxieties without falling into conspiratorial slopulism? The usual stuff. Also, will I go to the beach this month at all?
Stephen Lacey: Slopulism. I like that. I haven’t heard that.
Jane Flegal: Yeah, man. You’re not on the internet enough.
Stephen Lacey: No, apparently not. Okay. Well, let’s start with a story that is unfolding in real time here, and that is data center pauses. This one is in Texas. Governor Greg Abbott ordered Texas regulators to freeze new data center connections to the grid. And so every project in the queue gets audited: water use, power draw, tax breaks. This comes after New York Governor Kathy Hochul signed an executive order pausing approval of the largest data centers in New York for a year, anything over 50 megawatts.
None of these is a full moratorium. Hochul’s order doesn’t touch anything that already has permits and it exempts back office financial services and hospitals and universities and stuff. And Abbott’s move isn’t even legislation. It’s directive to the Public Utility Commission and ERCOT. But it does say a lot about how widespread and bipartisan the data center backlash has become. And this is the most active political story in the US right now. Jigar, your reaction. What’s happening in Texas?
Jigar Shah: You couldn’t script it. You couldn’t script it any better. Basically, it’s like when you have a White House who is so incompetent that they put out this data center pledge, which is supposed to make everyone feel like the government’s got this. We are figuring out how to make it work. And then they bring everyone back. And now it’s utility companies and all these other people and natural gas generator companies who are all signing the pledge. And literally weeks later, the governor of Texas is cowed into creating a moratorium because no one believes the White House. No one believes that the governor, that the electric utility company or the data center companies have their best interest at heart. Let’s be clear about this. The facts don’t matter here. I could tell you that they’re not using water or that their rates are actually going down, not up, or that the jobs are going to be real.
The noise pollution is real. I mean, anyone who’s been next to a data center, it’s crazy loud, right? Or all these other things. But the trust is just gone. And now every single governor that wants to run for election this fall, which includes Governor Abbott, has to look tough on data centers. Otherwise, there’s no chance that they win their election.
Stephen Lacey: Yeah. And I mean, this is very much a political story. Abbott is in a statistical dead heat with Gina Hinojosa. And she’s been really aggressive in calling for a longer moratorium. And the polling has definitely flipped in Texas. Just last year, Governor Abbott was out championing Texas as the epicenter of the AI industry. And so this has moved very quickly. How do you read this story, Jane? Do you see this as a political story? Yeah, what’s your view.
Jane Flegal: Yeah, I think this is almost entirely a political story. And I’ll just add to Jigar’s useful framing. I think there’s at least two big categories of stuff going on here. One is the sort of broader sense in which voters do not believe, for some of the same reasons around trust and agency, but also for other reasons, that there will be significant public upside in AI as a product. And so there’s kind of that set of anxieties, which I used to think were in some ways maybe the primary driver of the backlash. I now have some skepticism about that actually. The second set of concerns is just around the physical environment and actually building out the data center capacity itself. And Jasmine Sun had this great piece in the Times where she went and did a bunch of reporting where data centers were actually being built in the Midwest to try to sort of disentangle some of this herself around what actually is the source of the pushback.
For better or worse, for those of us who are obsessed with energy and climate, I suspect that most of what’s driving the opposition, even when it comes to physical infrastructure, has less to do with the relative cleanliness of the power than it has to do with a bunch of other issues around are communities actually seeing benefits associated with these things? And benefits for them probably isn’t going to mean is it solar powered or not? It’s probably going to mean a much more specific set of things that, by the way, lots of other industrial activity that we’ve done in the US has figured this out. How do you make sure that local communities understand and feel meaningful benefits from these things? I think the industry has just candidly done an absolutely terrible job on this. And look, I do think energy is a piece of this. I just don’t think it’s the primary driver at this stage. It’s just gotten sort of out of control.
Jigar Shah: I got a lot of pleasure out of the fact that Governor Abbott was basically calling for community benefits plans.
Stephen Lacey: It’s an ESG move.
Jigar Shah: As somebody who worked on community benefits plans for four years, right? The fact that his prescription was that every data center has to go back and create a community benefits plan, warm to my heart.
Jane Flegal: I just think though, this is the big thing on these pauses for me. It’s sort of like I do understand the impulse driving the desire toward a pause. We should say that a difference between New York and Texas that is important I think is that the New York. Well, first of all, New York is nowhere near the data center hub that Texas is. So it’s a totally different kind of political and economy and structure. And also the New York legislature passed a much more restrictive ban on data centers. And so Governor Hochul was sort of responding with a more nuanced intervention. So it is different in that way. But I just sort of feel like this is, if you’re going to pause, if the argument is let’s take a beat and figure out how to do this more thougtfully, you got to actually know how to do it more thoughtfully.
So my big anxiety is that these electeds are saying, let’s take a beat and do it right without having a really clear sense of what doing it right means. And that we’re going to have more vague gesturing at community benefits and pay your fair share without doing the real work to sort of figure out what does that mean in practice? And then in six months we’ll be in the same exact position.
Stephen Lacey: And this is where, to our previous conversations, I think environmental groups, climate groups, the clean energy industry needs to be prepared to fill this white space with good ideas. And there’s been so much resistance, particularly in the environmental movement, I don’t think that they’re fully prepared to help create coherent policy. Tell me if I’m wrong, if you think that’s wrong, but this is a really important opportunity to actually shape policy in a proactive way to ensure that as much clean energy gets built and as much reasonable grid capacity gets built that rate payers are not on the hook for. What do you guys think this white space looks like?
Jane Flegal: I mean, maybe just one thing I’ll say is that obviously the environmental movement is not a monolith. I feel like that’s my sort of form to say that before I say anything else. And I don’t think that we can count on organizations whose primary objectives are just different than those of us than people who want to see a bunch of data centers get built. They’re just going to have some different priorities. One of the things, I think if you surveyed environmental groups and funders right now and ask them what are the top three most important things that must happen in the next two years to minimize emissions increases associated with data center build out, people would probably just stare at you. I do not think we have a clear shared sense. For some folks, that means banning data centers altogether so that we’re not building any new energy infrastructure.
For some folks, that means trying our best to ban gas and assuming that we can power industrial activity without firm gas capacity. For others, it would mean just do virtual power plants and distributed energy stuff. I just don’t think people really have thought through what are the highest leverage interventions. And that’s resulted in a very reactive posture where people are both, there’s a lot of infighting and people are just not aligned on what the asks should be. And we are seeing, I put out this paper a while ago about an American grid infrastructure fund that kind of laid out what good grid citizenship might look like. And if you look at a bunch of the policy and regulatory advances that are happening, Senator Heinrich actually introduced a Grid Savings Act, I think yesterday. And then you have a bunch of states like New Jersey and Pennsylvania and Virginia and Oregon trying to sort of put forward their own versions of this on a couple of dimensions.
So like A, what is the size of the load you’re concerned with and how do you characterize it? Is it just data centers or is it any large load over a certain size? What is the size? How do you think about cost causation and what does that even mean? Do you have some kind of take or pay obligation? So rate payers on the hook. What are the standards on flexibility? And then what, if anything, are we asking these companies to do on clean firm power? There is still a lot of variability across those things. I’m curious what you think, Jigar, about whether we’re aligning on what good grid citizenship looks like or whether it’s still kind of the wild west.
Jigar Shah: Right now we are at the peak moment of hatred. And so this is not the time to talk about solutions. It’s the time to talk about hatred and why people hate everybody and why everything is so burning hot and whatever, whatever. And so until that dies down, I don’t see how anyone has a rational conversation. Look at batch zero. This extraordinary effort in Texas basically delayed now until after the election. Everybody was supposed to put their stuff in by August 7th. Now maybe it’ll get picked up in the August 20th Public Service Commission meeting. And so we’re in this weird spot where all of these extraordinary interventions where so many smart people like our friend Arushi Sharma Frank or other people have put forward all these great solutions. And at the moment at which we were going to test them and actually figure out whether they were a good way to allocate capacity, whether they were a good way to force data centers to pay their own way, all those other things, they’re going to be put on hold until after the election probably.
Jane Flegal: I guess this goes back. Oh, sorry, go ahead, Stephen.
Stephen Lacey: Well, I was just going to disagree. Is there ever really a bad time to do this? You got to do the groundwork ahead of time. So when the time is right, you are there, you’ve made the connections, you’ve created the policy ideas, you’ve built the relationships. I don’t think it’s time to hang back.
Jigar Shah: Oh no. Well, you know I haven’t been hanging back. As Jane has suggested, she’s like, “I’m overwhelmed with too much content that you’re putting back with her.”
Jane Flegal: I would never say that.
Jigar Shah: Yeah, I’m not hanging back. My point is that these solutions are not going to break through in the news cycle right now when everyone is just negative. When you think about all of the bills that Governor Spanberger passed in her legislative session, I mean that provides it a huge number of tools which are now being adjudicated by the SCC in Virginia. In fact, yesterday they had this extraordinary ruling where the FERC has demanded that there be this rate recovery of transmission investments in Virginia, which is normal. Normally that gets peanut buttered across everybody in Virginia. The SEC actually took the time, which Maryland did not do, and actually said, “Well, who is really causing all of these new investments?” It turned out it was data centers and they allocated most of the costs of that transmission upgrade to the data center tariff and not to residential customers. So it was going to cost an extra $3 a month or whatever to residential customers.
Now it’s only going to be 94 cents to residential customers and the rest to data centers. That’s a huge breakthrough. I don’t think it’s going to make the front page of the New York Times. But when you think about where we are in this cycle, all of the stories around the hatred, the why, the culture wars, all that stuff is going to come to the surface. And all of the extraordinary work that people are doing on DERMS platforms and virtual power plants and grid enhancing technologies and all these other extraordinary things are clearly going to be on page 28 of the newspaper. Nobody wants to talk about that stuff right now.
Jane Flegal: Yeah. I mean, as they should be, but I guess the question is at the end of the day, this sort of goes to what we were talking about at the outset. There is this sort of populist animus and some of it is very fair. It is not going to be about the design of large load tariffs or how do you do cost causation? That’s not going to resolve the political disputes anywhere about whether you build or don’t build these things. So I agree that there’s kind of a disconnect there. On the other hand, I also think those of us who inhabit our weird part of the world have not just a responsibility, but an opportunity right now to define what the technical answers are and to push them forward in many, many venues. And I think Stephen’s right. I just do not. I mean, I have had people ask me what’s the solution on energy and data centers?
And I think there is not yet agreement about what a good package looks like that should be advocated for aggressively by those of us who care about clean energy abundance or climate. I think we’re getting closer, but my concern is that if we don’t have that in pocket, these pauses are just going to kick the can for six months and we’re not going to use them in a way that addresses our selfless challenges. I’m also not sure how these electeds plan to use them to resolve the political fight.
In six months, aren’t the effects of this just going to redound back to them? I’m just not sure how this works. I also think, by the way, this waiting till after 2026 is a little silly because 2026 is likely to be mostly a thermostatic set of elections and I’m not sure it’s going to be about this frankly anyway. I think it’s a bit fuzzier in 2028 where I think this could matter a lot more.
Stephen Lacey: Yeah. And to your point about Jasmine Sun’s reporting, it feels like this is an important moment to establish what community benefits should look like, what the energy framework should look like. But I agree that I’m not sure how much this is going to solve the problem when people are really skeptical about the non-disclosure agreements that data center developers have forced local leaders to sign. They often start digging a project, they start working on a project before they’ve done any community input. And we’re hearing that that’s starting to change. There’s a lot of reconsiderations of these NDAs, but this is much more about deep distrust of tech companies, a worry that they’re going to build something that is not going to live up to what they claim or the AI bubble will pop and they are going to leave the community. And then also that they’re building a product that’s being forced on people and is going to cause an economic underclass.
And so yeah, I’m a little skeptical that somehow this pause that creates this new framework for community benefits is going to solve the challenge. I think it’s important. I think it is the moment for the clean energy industry in particular to get in and start working on these ideas. But yeah, it feels like it’s papering over the real problem here. And I don’t know how to solve that. That really comes down to how data center developers change.
Jigar Shah: Well, you have to find two different solutions. And if you can weave them together, then all the better. But that’s the work that we’re all going to do during the pause. So on this side, you’ve got a bunch of solutions that you have to prove to regulators, to utilities, to governors, to other people will actually solve the problem. Arithmetically, we’ll actually get electricity prices to inflation or below inflation in terms of rate increases because it’s not enough for data center companies to just write empty reports saying that more data center load actually leads to lower costs. Show that to me. That might be true in 2019. It’s certainly not true today. And so then the question becomes on the political side, how do you prove as a governor that you’re standing up to the big bad tech industry? I though what Governor Spanberger did was interesting, which was taxing data centers at 1.1 cents per kilowatt hour and then using it for the general fund.
It actually alleviated a lot of the tension around proactively backsliding on the tax breaks that Virginia had provided to the data center industry. And so there has to be something that probably looks like a data center tax that is put in place by a lot of these governors to hold them accountable. And then the question is, what do you do with that money? Because once you have that money, then the question is how do you deploy it into solutions that actually reduce people’s electricity bills and then make the false promises of the data center community around reducing people’s rates with all this load growth a reality? Because if people actually saw their bills go down or they actually saw a free battery in their garage, they might be like, “Oh, this is benefiting me.” But right now they don’t believe it because rates have gone up by more than inflation every year for the last five years.
Jane Flegal: Yeah. On the Spanberger thing, I’ll just push back a little bit. For me also maybe because I worked on industrial decarbonization in the White House, I’m spending a lot of time thinking about whether and how data center development is different from other parts of the economy that we want to see grow and electrify. And whether the things that we’re doing here are precedential in bad ways for ostensibly the US wants to re-industrialize and have a single aluminum smelter, for instance. And are we setting precedent around data center cost causation and load growth and tax policy that has the potential to backfire for other things where there’s more alignment around the need for those things to grow and electrify? I will just state for the record, I do not like the idea of taxing electricity use full stop. I just think that’s not a good solution.
We want to encourage electrification of the economy. Electricity is a driver of economic growth. I don’t think we should discourage it. I understand the bind that Spanberger was in. Maybe it’s time for a carbon tax on data center electricity. I think the idea of a flat fee on electricity consumption is just very bad precedent and sends the wrong signal.
Jigar Shah: But why would you suggest that the electricity tax can’t be only on data centers and it’s setting a precedent? It can be. Whereas on the carbon tax side, you’re saying, “No, no, no, we can actually just provide a carbon tax on data centers, but not on everybody else.”
Jane Flegal: I mean, you can do a carbon tax just on data centers. You can do an electricity tax just on data centers. But the difference is that you are charging a fee for the use of electricity versus charging a fee on the negative externality of pollution. And I just think that really matters for how we think about growing electricity demand and how we price electricity demand growth and incentivize it. So I’m a little anxious about that. I’ll irritate Jigar even more by saying that the Virginia example on cost causation, this has caused me as someone who’s not actually a grid nerd to feel a little like a crazy person. Every single large load tariff, every governor’s statement, whatever says the same thing about make sure the utility, sorry, make sure the data centers pay for what they cause. That is kind of an impossible question to answer actually.
Or it is at the very least extremely imprecise. I think it’s easier on the generation side, but on transmission, which is fundamentally shared infrastructure, I think it’s just very hard to say with confidence that every network upgrade can be allocated to individual loads. That’s not to say we shouldn’t do our best to be fair about these things, but I do kind of think we have to call a more fundamental question about if transmission specifically is shared infrastructure. A, what are the risks we’re trying to mitigate here? If the risks are overbuilding transmission that isn’t useful and is therefore an economic, I just think that risk is highly overstated, certainly relative to underbuilding transmission in this country. No,
Jigar Shah: No, I mean, but I think I’ve agreed with you on all of that, so you haven’t irritated me at all. My point is simply that I don’t see how you reconcile the mechanisms. I’ll give you an example. So if in Virginia, instead of taxing the data center as 1.1 cent per kilowatt hour and putting it to the general fund, instead you said we’re going to tax the data centers 1.1 cents per kilowatt hour and we’re going to cap residential rate increases to half of inflation every single year. And we’re going to allocate whatever the cost increases are that the utilities need to the data centers. So their rates could go up 10% a year. Now the data centers have full incentives to actually use all of these AI tools, et cetera, to educate the utilities on, oh, you could have put batteries in all these places and that would have been one 10th the cost of what you ended up doing.
You could have done this. And they have so much money that they actually might actually donate $50 million a year to the Public Service Commission to give them the tools to fight back against the pure corruption that’s been going on with the utility industry. The notion that we don’t have American technologies that we’ve invented the last 30 years that could bend the cost curve on electric utility rate increases is poppycock. But in general, there’s just a power imbalance. So if I provide a tax on the data center, they now have the incentive because that tax could go to zero. We would structure that tax such that that money would get used to make sure that utilities can only raise rates on residential by half of inflation. And if they magically figured out how to actually make rates go down, well, now the tax could be zero, right?
Because ultimately they don’t need to pay a tax in order to keep the residential rates at half of inflation. So now you align incentives for the data center companies to use all these extraordinary tools that they’ve invented, that they’ve told us can do all of these magical quadrillions of equations in four minutes to help serve the public good.
Jane Flegal: Yeah. I mean, these are all just very elaborate workarounds to the point that you’ve made repeatedly, Jigar, about misaligned incentives in the sector. I guess one question I’ve had, actually Ezra Klein asked Jesse and I this when we were on his podcast and we both just kind of stared at each other and it never aired, I don’t think. But he asked us like, “Do you have to reform the utility business model? Do you have to do fundamental market reform to decarbonize the United States?”
Jigar Shah: Yes, of course you do.
Stephen Lacey: What would you say, Jane?
Jane Flegal: I don’t know. I genuinely do not know the answer to that question. I think where it breaks is, well, for one, as a social scientist, I tend to think that changing social systems is much harder actually than taking them as given and trying to engineer around them. I just think it’s very hard, evidenced by the fact that people have been hand wringing about the CapEx bias and the utility sector for more than a decade and we haven’t figured out how to crack that nut. These systems are just hard to change for all sorts of political and economic reasons. So for one, I think my bias is a little bit like we have to move so quickly to decarbonize that do we invest our marginal unit of effort on changing these social systems or just working within them? If the answer is you can work within them and still make change at the scale and pace needed, then I tend to be like, it’s fine.
I think where this starts to break in the current model is on electricity affordability politics where it’s like it definitely is true that you could decarbonize the US without changing these things. It would just be extremely expensive. And is that just a price that no, especially given that the lesson of the unpopularity of carbon taxes is that the public’s willingness to pay for climate is very low. If you make the costs of decarbonizing very high in the form of very high electricity prices because we’re not effectively disciplining capital spend, maybe that is a real threat to decarbonization.
Jigar Shah: Well, but this is where I think your point on the election cycle in some ways fell flat. I mean, electricity affordability was the number two issue in the Spanberger-Sherrill election last year. And I think it will be a number one or number two issue in many states for the 36 governor’s races this year. And the White House is of two minds on this. On the one hand, they are the most data center stand people in the country. And now they’re like, wait a second. I don’t know that that’s going to be great for me. And energy affordability is going to be on the ballot because of the Strait of Hormuz. I mean, gas prices are probably going to be $5 a gallon again by November. And so when that occurs, I do think that affordability is going to be on the ballot in the fall.
Jane Flegal: I think undoubtedly affordability is and has been on the ballot. I think there’s a real question about how much of that is electricity affordability. And again, my bigger pushback, which is maybe just a form of nihilism, is a lot of these elections, including the recent gubernatorial elections, have been as much just like a thermostatic swing in response to Republican control of government as they are about really any issue. It’s just a little bit in the weeds.
Jigar Shah: I’m not disagreeing with that, but I mean, remember for our industry, or at least my industry, I would suggest that the fact that Governor Sherrill thought it necessary for her first executive order to be to declare a state of emergency and to freeze electricity rates, kind of a shocking thing to do.
Jane Flegal: Totally.
Jigar Shah: And so she clearly thought politically that she had to do that. And certainly I think Governor Shapiro is heading down the same track. I mean, he outright rejected a public service commission docket as a governor. PECO submitted a rate increase to the public service commission. Governors don’t usually get involved. He’s like, no f’ing way. And then the CEO of the utility resigned and they replaced the CEO of the utility. And then Governor Shapiro put out a principles for data center or whatever. He clearly feels politically like this isn’t thermostatic, but in fact, something he has to actually respond to with tangible promises that he probably will have to then deliver on if he gets reelected.
Jane Flegal: He also, I suspect, has an eye on 2028, just to say.
Jigar Shah: Sure, but then again, not thermostatic.
Jane Flegal: I think 2028 is a different. I really do think it’s a different ballgame in that way. Yeah. Look, I recognize that the politics of electricity affordability are front and center in all of these elections. I’m not trying to totally deny that. I just think the question of whether they’re decisive in electoral terms is a little more complicated than some people are claiming.
Stephen Lacey: And to answer your original question, yes, it feels like in order to decarbonize at the pace we need to, we need fundamental rate redesigns. Traditional cost of service regulation is not enough and keeps resources from participating in the market, incentivizes the utility to not invest in the wide spectrum of solutions that Jigar’s talking about that we’ve developed over the last 30 years that can unlock more transmission capacity, unlock customer participation in a wide variety of distributed resources. It feels to me that the rate redesign is a pillar of the plan to accelerate decarbonization.
Jigar Shah: The electric utility industry is the only industry in the world that basically hates itself so much that it is trying to get people to not double the use of electricity. When you think about what it could be doing on heat pumps and electric vehicles and all these other things, they have been forced to come to the table to get people to use more electricity. When you think about just how badly you have to run your company to get customers to hate your product as much as they are doing that over the last five years, it’s bonkers. We are trying to get them to sell three times more electricity over the next 30 years. And they’re like, “Maybe, but how are you going to do that if we keep raising rates by seven and a half percent a year?” And they feel no obligation whatsoever to propose how they’re going to reduce rates down to inflation every year.
They are perfectly willing to sit back and have us force them to make their product more affordable as if it’s my responsibility to run their fricking company.
Jane Flegal: I have a little more empathy for the utilities, but I do think this question of. I mean, what is certainly the case is that these kind of messing around on the margins and not addressing the core incentive misalignment. If you believe that that incentive misalignment is the core thing, then that is probably what we should be advocating for. And I just don’t see as much of that as I would expect given how focused people have been on this. I also, by the way, have looked at other jurisdictions that have moved to more performance-based rate making or whatever. And it’s not all roses and butterflies either. I just think this is a hard problem. If there were an obvious solution, I would be much more excited about pushing it everywhere. But I also think that small C conservativism of the utility sector is for me anyway, in some ways, at least a little understandable because if we think the politics of affordability of the electricity system are bad, wait till there’s significant rolling blackouts and reliability failures.
Jigar Shah: Yeah, but that’s not the alternative, Jane. That’s just their scare tactics.
Jane Flegal: No, I don’t think it’s inherently the alternative, but I guess I’m just suggesting that big changes when you have that kind of response. I can understand. I know we’re going to disagree about this, but I can understand why they have a slightly different obligation than those of us who are pushing for them to do novel things all the time.
Stephen Lacey: Well, speaking of people disdaining corporations, let’s shift gears here and talk about corporate climate accountabilities.
Jane Flegal: Well, not his corporations, only some corporations. The aggregators are excellent and their incentives are perfectly aligned, but the utilities are bad.
Stephen Lacey: Well, Jane, this is a subject you’ve been thinking a lot about. Let me try to set the scene. Actually, the last time we were talking, we were talking about climate hushing, politicians steering away from talking about climate change, afraid of voter backlash. This week, we’re kind of talking about how that’s playing out in the corporate world. Think about what happened at the beginning of the last decade. Suddenly we saw corporate sustainability become a mainstream phenomenon. After the Paris Climate Agreement, it became a trend for the world’s top companies to create these science-based net zero emissions targets, some for 2030 or beyond into 2050. Even oil and gas companies had their own net zero targets. And before, leading up to the second Trump administration, it culminated in this confusing soup of ESG, DEI, sustainability targets, net zero targets that were very well-intentioned, but often felt more like press release activism than anything.
And so you can pick an industry, oil and gas, manufacturers, consumer products. So many companies now have backed away from their emissions targets. They’re saying that it’s too hard or that consumers don’t care. Some of this is political. Some of it is them realizing the reality of their target setting. And then of course in this, we have AI load growth and rising electricity prices and the tech companies themselves that were considered leaders in zero carbon energy are now exponentially increasing their power consumption and helping to usher in a gas renaissance. So what happens to this now? I think Jane, you have some ideas on the limits of this traditional corporate approach. But first I just want to talk about the state of play. Hat do you think is driving the general exodus from net zero goals? A political calculation, just too hard? Has affordability taken the mantle? What do you think, Jane?
Jane Flegal: Yeah, look, I mean, we can get into my broader critiques with the entire voluntary corporate net zero framework, but I think a lot of what we’re seeing is political. Again, Stephen, your parallel to climate hushing in the political and electoral domain is apt in a way. What I am observing is that many of these companies are staying the course and in some cases deepening their ambition on their actual actions or implementation, but not talking about it as much, which would suggest that that is at least partially a political calculus, which I think is part of what is happening here for sure. I also think, again, the parallel with actual electeds in policy is that we were in this phase for the last few decades of target setting where everyone was like, “I will setting more ambitious. I’ll be net zero by 2028.” Where the stakes of implementing effectively weren’t born by the person making the commitment.
And I think we’re now in this phase where candidly, the target dates are just sneaking up on people. And you have explosion and data center demand growth. And most of the companies with the most ambitious commitments were these sort of high margin tech companies, not all but many of them. So I think it’s a combination of those things. But Jigar, what do you think?
Stephen Lacey: Yeah, Jigar, I think you said in the past, you never got the net zero goal setting. I mean, obviously companies need to rally around some kind of target for decarbonization. Why did you think net zero was the wrong one?
Jigar Shah: Well, I mean, for a lot of the reasons I think Jane was suggesting. I just think that none of the math was mathing. Now it’s becoming obvious to people, but it was obvious back then that the math wasn’t mathing. The notion that you could decarbonize steel using hydrogen was always crazy. The notion that you could figure out a way to do cement in the way in which people wanted to do it or whatever it is. I just think that Chris Wright is not wrong, which is around the fact that only 20% of our energy comes from electricity. That we were all just focused on decarbonizing electricity. And yes, we think electricity can get to 35% or 40% of total energy consumption in the near future. But what about the rest of it? What about all the plastics that people want to use because they think it’s hygienic?
Or what about all of the clothes that people wear that now have microfibers in them? And what about this? And what about that? And I just think that in general, what I want to get the hyperscalers and all of the other corporations who care deeply about things to do is to focus on how they shorten the timeline from invention to scale up. How do they use advanced market commitments? How do they use these tools that they themselves have been practicing how to use to actually get promising technologies up the volume curve such that they can actually get down the cost curve? And I just think that we have lost our way in terms of how to do that in a way that’s predictable. And the reason I care about this is because there’s this notion that the West can invent things, but can’t actually deploy them.
And so we have to rely on China to scale everything up and to deploy things and to manufacture stuff, et cetera. And I think that whether it’s the Biden administration and the extraordinary work that we did, or the Trump administration today, who I think is continuing a lot of that work, we still need to have a bipartisan consensus with these corporations on how to commercialize US technology.
Stephen Lacey: This is a perfect transition to your point, Jane. So you wrote this report for the Searchlight Institute back in June about the limits of the accounting behind net zero. And then you lay out what you think the alternative should be. And I really like what you wrote here. You said the goal should not be a new form of individual credit claiming, but an honest account of whether a company’s capital and influence are directed at the issues that actually determine the pace and scale of decarbonization. So explain what you mean by that.
Jane Flegal: Yeah. I mean, I think taking a big step back here, to me, having voluntary corporate net zero commitments and actions makes some sense if your belief about how we solve climate change is that we’re going to do some kind of cozy and property rights logic where every single company on the planet has emissions liability that requires an offset or a reduction. That to me was never a coherent strategy for climate. It may work for other pollution problems where you have obvious affordable substitutes and local impacts, but the atmosphere doesn’t care whose books a ton of carbon sits on. And so in a voluntary system, you’re just rewarding companies for optimizing their own accounting position, not for solving the coordination failures and the infrastructure failures that actually determine the pace of decarbonization. And so I had a front row seat at this because I left the White House and I went to Stripe to help launch Frontier, which was this advanced market commitment for permanent carbon removal.
And the whole theory of change was not high volume of low cost offsets so that these tech companies could maximize their accounting positions. It was the world needs permanent carbon removal. It doesn’t yet exist at any meaningful scale. We have to get it down the cost curve. Tech companies could have a role to play here because we’re high margin businesses with extra money to spend on a problem that we care about. And I was in charge of market development, which basically meant that I was trying to talk to widen the market for this. And I was talking to buyers, including buyers with net zero, ambitious net zero commitments. And they were just sort of like, why would I spend $900 a ton on this carbon removal project today if I could go buy a $4 a ton forestry offset? And so it just became very clear to me that this isn’t actually just an issue of the offset market being trash, although it is.
It’s about the entire incentive structure back to incentive structures and framework of individual corporate footprinting and accounting being totally incompatible with what we actually need to do to accelerate decarbonization. And one thing, what Jigar’s comments were triggering for me, the problem is the solution that I offer is going to be deeply unsatisfying for people who like to measure widgets because I think basically you should evaluate companies on one, their investment additionality. So does the actions that they’re taking cause more clean energy or clean energy infrastructure to exist than otherwise would? And that is definitively not purchasing an unbundled renewable energy certificate from somewhere. And it will be harder to measure. I mean, you could just look at expenditures, but it’s not as clean as like, here’s my net zero ledger. And second, which is even less popular probably, is transparency about the stated climate outcomes these companies want to see and transparency about the instrumental actions they’re taking to achieve them.
So whether that’s financing first of a kind projects, funding transmission, or to a point that you’ve made, Jigar, that you just made. I would like to see even on the solution set around distributed energy and demand flexibility and grid enhancing technologies. If these companies are spending a bunch of money to address the actual barriers to scaling those things, including the policy and regulatory and incentive barriers, to me that just, if what we’re actually doing here is talking about how do we accelerate decarbonization? The marginal dollar spent on lobbying for that stuff is much more important than a dollar spent buying an unbundled rack.
So that’s sort of my pitch on this stuff. Shockingly, it hasn’t quite taken off to the degree that I would like it to. But I think also part of the reason I felt compelled to write it now was not to beat up on corporate net zero, but it was just like, man, all these companies who have the potential and interest in doing the right thing are going to end up in this situation where all of these kind of measurement of measurement frameworks, whether it’s the science-based targets initiative or the greenhouse gas protocol or whatever, are going to be having pressure to loosen the standards or tighten the standards. The politics of climate are different than what they were. And I just want these companies to. I think this is an opportunity to find a landing zone for corporate climate action that actually moves the needle and doesn’t commit them to political suicide.
Stephen Lacey: Yeah. One thing that I’m thinking about as I’m hearing you both describe this is that it sounds a lot more complicated in terms of the types of teams you need to build up inside a company as well. And I could imagine that being a significant barrier. I mean, you look at Google, which is doing these advanced market commitments. It is supporting a wide variety of frontier projects across carbon capture, geothermal, long duration storage. And it has an extremely sophisticated team to be able to execute these projects. And of course, advanced nuclear as well. And so not everyone is going to be doing this in the way that Google is, but still it does require more specialty inside the company versus just buying cheap carbon offsets or recs.
Jigar Shah: I don’t know that that’s exactly something that is a high bar though, Stephen. I think if you meet the team of people within Nucor that evaluates all of the random proposals that they receive, they’re all extraordinarily smart people just like Lucia’s team at Google. And the fact that Meta and Microsoft and Oracle and others haven’t hired that same team is honestly shocking to me. Why would you just want a random procurement officer in charge of being bombarded by unsolicited offers for technologies that they have no expertise by which to evaluate? And we have thousands of people, unfortunately, who are out of work now from the Department of Energy and other places who have that expertise and actually are not that expensive. They should be hired by those corporations to be able to evaluate these things. To me, if you’re a Fortune 500 company, you should have this level of expertise to be able to evaluate these things.
Stephen Lacey: Do you agree, Jane?
Jane Flegal: Yeah. I mean, I guess I will say that I really, especially after my experience at Stripe and Frontier, came to value the importance of hiring good people in a way that I was sort of not dismissive of before, but Nan Ransohoff, who launched Frontier, has many superpowers. One of them is hiring incredible people, present company excluded. But the team she has built at Frontier is incredible. And I think that should be the case at any high ambition company. We just need to take much more seriously what are the skill sets you actually need? Frankly, say that the companies took seriously my provocation that they should be basically saying what they think decarbonization requires on the policy front and then doing aggressive advocacy on that front. I actually, if you look at some of the pushback on the data center stuff, one of the things that’s really shocking to me is that you have some of these companies paying a hundred billion dollars ahead for a good coder or whatever.
And meanwhile, their lead federal policy person on data centers is making like 200 grand a year or something. They need to upskill on this piece of it in my view. And if that’s how they were actually being evaluated on their climate ambition, maybe that would force them to upskill a bit more on that front. Great point. So yeah.
Stephen Lacey: Yeah.
Jigar Shah: But I also think that the amount of money that these corporations are being asked to put forward. So if you think about not just talking about the data centers, but people like Netflix or Disney who’ve made really large commitments around making sure that the trucks that they use are all electric and that they’re using less diesel and more mobile power solutions for onset, et cetera. The totality of these contracts is like hundreds of millions of dollars. These are not small amounts of money. And so spending an extra million dollars a year for a crack team that can do that stuff. I mean, and Netflix has amazing people and so does others. But I do find it shocking that there are companies that I have met that I won’t actually name that have these really big commitments and are signing very large offtake agreements for sustainable aviation fuel or other things without the necessary expertise. And part of the role that we were playing at the loan programs office specifically was I would talk to all these people and we were their back office. We were providing them all of the technical assistance that they refused to pay for internally.
Jane Flegal: Yeah. I mean, look, there’s another piece of this just to criticize my own cultural milieu, which is that the Democratic Party has not historically been super enthusiastic about hiring people who have worked at these companies. So I think there is. I mean, candidly, I just think it’s probably for a lot of people, Jigar, who left DOE, not insignificant consideration about should I or should I not go into these companies is like, will I be permitted to join at the next Democratic administration if I do this? This is actually a critique of government hiring then, which is like how do we get government, including democratic governments to value private sector expertise rather than always seeing it as some inherent sign of corruption?
Stephen Lacey: Stepping back from this, if we sort of take your framework to evaluate how companies are doing, I mean, just stepping back, if you look at the sustainability reports for these hyperscalers, it’s pretty bleak. Microsoft, Meta, Google, Amazon, their emissions are all up and to the right. They’re diverging sharply from where they said they were going to be a few years ago. Ketan Joshi on his blog has tracked all the emissions reporting. So you can go check out that. We’ll maybe provide a link to that. But it’s not good. And if we take that framework, Jane, and say, rather than evaluate a company like Google for hitting net zero by 2030 and we say, “Is Google using its capital and contracting power to expand the grid’s clean capacity faster than it would without them?” Even though Google’s emissions are going up rapidly, do you think that Google is succeeding in some way, given that it is a leader in some of these advanced market commitments and building teams to deploy innovative technologies?
Jane Flegal: Yeah. I mean, look, my basic view is that the data to answer that question well doesn’t exist because they don’t report on the stuff I would want to know. I mean, some of it they do. So for instance, one could argue, again, I work on industrial decarbonization. So Jigar’s point about Nucor is resonant. And when I say industrial, let’s just leave data centers outside because people don’t view them as industrial really. But I think this question of what are and could these companies be doing on clean materials to help pay down the kind of green premium or to bring these technologies down the cost curve? Right now, no one’s really paying attention to that. I think that could be in some ways the highest impact thing that companies like Microsoft are doing right now. And they’re just not getting credit for it in any meaningful way.
So I think yes. And same on Google, Stephen. Whether they are. To me, it feels a little less material. Are they buying exactly enough? And they’re good actors. So for them, they’re not buying racks. Are they buying the same accredited capacity in the same location to hourly match their blah, blah, blah? Matters way less to me in some ways than where is their lobbying money going? What policy issues are they most aggressively trying to advance or defend? And are they driving new technologies down the cost curve? Whether that’s their investments in and purchases from geothermal companies or the work that some of these companies are doing in new nuclear or what they’re trying to do on grid enhancing technologies and AI on the grid. All of those things just feel much more material to me for systemic decarbonization than any one project’s relative mix of batteries and solar and wind and gas.
Jigar Shah: Well, I mean, I think that you know that my entire life’s work has really been around this commercialization of technology piece. So for me, the loan programs office provides a very good metric for this. You have 300 loan applications that we left in the hopper when we left office. Those loan applications needed off-take agreements, whether it was geothermal or nuclear or clean steel, clean cement, sustainable aviation fuel, whatever it is that they need off-take agreements. And so the question becomes who wants to step up and sign those off-take agreements? And so to me, if they sign those off-take agreements and they enable those projects to move forward, and to Jane’s point, maybe that’s lobbying too for the biofuels tax credit or for the 45X tax credit or for 45Q or for this or for that. To me, industrial policy matters because I think that ultimately we can’t assume that the US Congress and the American people will allow us to continue to invent everything here in the United States and let all of that technology leak out into other parts of the world to get scaled up.
We have to be able to invent stuff here and scale it up here and then continue the innovation cycles here. And I think the corporations can play a very useful role and they have claimed that they want to play a very useful role in that cycle. But I think it has to be more tightly defined. And I think for venture capitalists and others, they have to know that when their companies hit a certain milestone, that they’re going to get those offtake agreements. And if they don’t, well then the system’s broken. And ultimately those technologies will leak to Asia and other places.
Jane Flegal: I guess one last thing I’d say is we’re in a real opportunity for learning, I think. A lot of these A lot of these tech companies, so more than 90% of all corporate clean energy bought in Q1 was by four technology companies. They are doing a lot of work here. I think their emissions intensity is continuing to go up despite that, which for me is a lesson about how hard it is to actually rapidly increase demand for electricity and keep prices low and decarbonize. It is just hard. And I feel like one of the things I’ve learned from the surge and data center demand is all of the ways in which it’s revealing problems in our existing electricity system, from the incentives problems Jigar has flagged, to the concerns about insufficient inter-regional transmission and interconnection issues, to permitting challenges, to tariff. There are all of these things that we’re learning actually really make it much harder to do this than it should in a model.
So I think taking a moment, giving these companies some credit to take a moment to say like, okay, as it turns out, here’s actually what the biggest barriers are for us to do these things, which are all probably going to scale to society at large, by the way, not just data center developers. Let’s devote some attention and resources to addressing those kind of systemic barriers.
Stephen Lacey: Nothing a one-year moratorium won’t fix.
Jane Flegal: Right, exactly. I’m sure that’s what we’re going to do in the next six months, that we’re not building data centers.
Stephen Lacey: Jane Flegal, this was great. Thanks so much for joining us.
Jane Flegal: Thanks so much for having me.
Stephen Lacey: Tomato sandwich on the docket after you finish.
Jane Flegal: I’m going to PB&J in Swiss, my mouse.
Stephen Lacey: Nice.
Jane Flegal: All
Stephen Lacey: Right. Catch me eating hot cheese with jelly.
Stephen Lacey: Yeah. Jigar, you’re going to eat some of that jam, that hot jam. What is it called? What is it?
Jigar Shah: I mean, it’s hot pepper jelly. Hot
Stephen Lacey: Pepper jelly. It’s amazing.
Jigar Shah: And yeah, I probably will be eating some of that now that we mention it.
Jane Flegal: Sounds great.
Stephen Lacey: In that wonderful shirt. Is that a Maryland flag on your shirt? What is that? It
Jigar Shah: Is. It is.
Stephen Lacey: Wow. Really enjoy talking to both of you. This story is just moving so quickly. It’s crazy. Thanks everyone for being here.
Open Circuit is produced by Latitude Media. The show is edited by me, Sean Marquand, and Anne Bailey. You can find our episodes on Apple, Spotify, wherever you get your audio podcasts, or of course go to YouTube and subscribe to Latitude Media there. All of our episodes are there. Welcome to so many of our new viewers. You can find transcripts at latitudemedia.com. While you’re there, check out our newsletters and get all of our industry coverage. So much of what we talk about on the show, we are covering on the site and on our newsletters. And if you like it, be sure to subscribe and like it, and we appreciate your support. I’m Stephen Lacey. We’ll catch you next week.
