Bret Kugelmass: Joe Hezir. Thank you so much for having me at the Energy Futures Initiative.
Joseph Hezir: Well, thank you. Glad to be here and glad to have you here today.
Bret Kugelmass: I know you spent a ton of time as a financial guru, both in the White House and at the Department of Energy, but where did your interest in energy actually begin?
Joseph Hezir: Really it goes back to my undergraduate degree in chemical engineering and started taking an interest in environmental control technology issues. And then from there I quickly moved from the technology side to the policy side, and that's how got really interested in energy. Although my first job in government really was on the environmental side because I had experience as an environmental research engineer. I was looking for a position here in Washington, with one of the agencies and there was a position that opened with the Office of Management and Budget. At the time I was not particularly interested in budgeting, but they were interested in somebody who had experience as an environmental engineer.
Bret Kugelmass: What's the bread and butter of the environmental engineering industry?
Joseph Hezir: Well, I was doing mostly research work on pollution control technology. I had worked for a large corporation, looking to address some of their hazardous waste cleanup issues and doing laboratory research on different techniques for how they might change the operation of their plant. And then later on, I was on the staff at Carnegie Mellon University where we were doing research work for the steel industry, and trying to develop some new technologies for their air pollution control issues associated with the blast furnace operations.
Bret Kugelmass: When we look at waste products that go into the environment, how would you characterize them? How do we think about these issues?
Joseph Hezir: Well, all of these processes have residuals, whether they're discharged through the air, water or solid waste. With, increasing recognition of the environmental and health impacts of those discharges, there are increased efforts for environmental protection. From a technical standpoint, it's created a new set of challenges for people in the engineering field to find ways to either modify those processes to reduce the amount of emissions or define ways to clean up those emissions before they enter the environment.
Bret Kugelmass: Is everything accounted for or is it just the things that we tell companies they have to keep track of because it might pose some sort of a chemical hazard or toxicity to the environment?
Joseph Hezir: Looking over past decades now, environmental regulation has become very sophisticated and I think there are now a number of requirements for companies to monitor, report and control emissions. So, they are addressed in a very comprehensive manner.
Bret Kugelmass: So you came into the Office of Management and Budget because you had this experience. What did they want you to do then?
Joseph Hezir: Well, this was two years after the enactment of the Federal Water Pollution Control Act amendments of 1972. There had not been a whole lot of activity yet on implementation and it was just beginning to enter the implementation phase. There were many new federal programs that were authorized by that act, and so there were many questions about the budgeting for the Environmental Protection Agency, which was in charge of implementing the act. So I was involved in reviewing and preparing the budgets for a lot of the clean water programs, and also in reviewing the early regulations that were being issued by EPA under the act.
Bret Kugelmass: I mean, you say reviewing, what were you looking for?
Joseph Hezir: In addition to its budgetary oversight role, the Office of Management and Budget also has a government wide regulatory oversight where it's charged (through a series of executive orders and now by a statute) to review proposed government regulations to make sure that the cost of regulations that are imposed on society are justified by the estimated benefits of the regulatory approaches that the agencies are taking. So making sure that they're using the most cost effective approaches, and that regulations are as streamlined as possible. So the idea of having the independent review is to serve as a check to make sure that indeed the federal government regulation is as efficient as possible in accomplishing the statutory objectives that are set forth for those regulations.
Bret Kugelmass: Are there, just depending on the administration, different swings of when you go heavier towards enacting more regulations? How do you run that calculus of are these regulations worth the benefit to society or are the costs too high swinging in the other direction?
Joseph Hezir: Over time there has just been a gradual trend to have increased independent scrutiny over federal regulations, irrespective of presidential administration. And the reason for that is that, if you look back over several decades now, the scope of federal regulatory authority has expanded greatly. So there have been increasing concerns about the costs being imposed on society and to make sure that those costs are justified by the benefits.
Bret Kugelmass: Is there a good way to value this? Do we just look across society and say, yes, it's good to impose a cost with regulations on any given industry to make sure that they're cleaner and pollute less in the environment? Do we look at the net effect and say, for example, if this chemical is twice as expensive as it was before and that chemicals goes into medicine, maybe we're doing more damage than good because people can't get medicine at a cheaper rate? Do we look at the entire net effect of any given industrial process and view it holistically?
Joseph Hezir: Not on a regular and consistent basis., but there have been various periodic efforts to take a systematic review of regulations. For example, there have been several periodic comprehensive reviews of the Clean Air Act because under the Clean Air Act there are many regulations and to look, as a whole, at what the Clean Air Act accomplished in terms of health and environmental benefits versus what costs it imposed on society. So there have been some of those, but it's a very expensive and a very extensive process to do that.
Bret Kugelmass: What role does the executive branch play, other than this review and oversight? What if they review and find something isn't exactly how they wanted? What's the give and take of the two branches of government in that sense?
Joseph Hezir: For a lot of the environmental statutes, Congress has granted broad authorities to the executive branch, primarily to the EPA. So the EPA has wide latitude and fashioning regulations. There are certain statutory touchpoints or requirements that they have to meet, but they have a lot of discretion in how they regulate. A lot of the technical, scientific, and the economic analysis come into play to find the right combination and the right approach to setting those regulations.
The OMB & MIT’s Energy Initiatives (10:00)
Bret Kugelmass: You were at the Office of Management and Budget for almost 20 years. What jumped out at you the most during that time?
Joseph Hezir: The Office of Management and Budget plays a very important role behind the scenes because again, as government has become more complex, there are more issues that arise of an interagency nature, and the Office of Management and Budget in the hierarchy of the executive branch is the first place where the interagency issues begin to come together in one place. So the Office of Management and Budget plays a role in coordinating, and in some cases refereeing, interagency issues.
Bret Kugelmass: What's a specific interagency issue that you remember?
Joseph Hezir: One of the early ones that I worked on had to do with the regulation of wetlands, where the authority to issue permits for activities that affected wetlands was vested with the Army Corps of Engineers. But EPA was responsible for issuing the environmental guidelines that the corps of engineers then had to implement. There were disputes between the two agencies as to how strict the guidelines should be and how well they could be implemented. This was an issue early on and it was very controversial even to this day because of the issue of US waters and the extent of federal regulation over areas such as wetlands. When we were developing these two sets of regulations in parallel, we ultimately created, daily meetings at the Office of Management and Budget with both agencies sitting in the room working through one set of regulations or the other in order to come out of the process with a common understanding for how that would work.
Bret Kugelmass: What was the most contentious aspect of it?
Joseph Hezir: The most contentious aspect I would say would be regulation of farming practices in wetlands because oftentimes wetlands can be found in agricultural areas. So there were questions about what types, if any, of farming practices should be permitted or allowed to exist on farm land that was also partially wetlands. The farm community obviously then also became very much engaged in that discussion, along with the Department of Agriculture.
Bret Kugelmass: You got looped into the energy sector what through one of the MIT reports, was that how you first started really diving into energy?
Joseph Hezir: What really got my interest in energy when I was still at the Office of Management and Budget. This was after the, Iranian Oil Crisis in 1979. There was an opportunity at that point for me to move from the environmental area over into the energy area and I became very interested in energy policy issues, particularly with respect to the oil markets. I had an opportunity to take on the responsibility for the Department of Energy Strategic Petroleum Reserve Program. And that program was set up to deal with and respond to disruptions in the global energy and petroleum market.
Bret Kugelmass: How come it's not used to just stabilize energy prices over a much longer period of time? We know how bad volatility is for businesses to make decisions. How can we just have a giant reserve and fill it up like a capacitor and discharge to just keep prices levelized across decades?
Joseph Hezir: I think there's two reasons for that. One is a philosophical reason; for both Republican and Democratic administrations, there was a reluctance to have government interference in the global oil markets. Secondly, the market is global so that even if we were able to regulate what happened in this country, the oil markets interact in on a global basis. Thirdly, it would take an extremely large capacitor to be able to buffer a global oil market. The policy has always been to have the reserve as a backstop to deal with severe supply interruptions (such as embargo scale impacts on the market).
Bret Kugelmass: Now we're not so worried about this because we've discovered so much oil that we have domestically, right?
Joseph Hezir: Yes, because the markets have changed substantially. If you look at the pattern of petroleum supplies around the world, the concentration in the Middle East is not as great as it once was. At the same time, domestic production is significantly higher. We've gone through a series of revolutions in domestic production; going back to the 1980s with the discovery of oils in the Overthrust Belt and then into the early 2000s with the development of unconventional oil and gas. We now have, an abundance and in fact, we've now completely reversed, what had been historical policy on, oil imports and exports The US is now a net oil exporter.
Bret Kugelmass: Why do we export given how important energy is? Given how we've seen supply crises affect our country in the past, why don't we just have a rule that all our oil is ours?
Joseph Hezir: Because it is a global market and there are limits to what you can control within borders and the petroleum market. And I think economists would say, that having an open market results in the most efficient market and the lowest prices for all consumers. So I think, looking longer term, that kind of a market is the most efficient in terms of pricing. It's also the most efficient and encouraging new investment. You want to continue to encourage investment in new development.
Bret Kugelmass: Tell us about the MIT energy initiatives.
Joseph Hezir: The MIT energy initiative began in the early 2000s, by Professor Ernie Moniz. He had served in the Clinton Administration Under Secretary of Energy, formerly and then went back to MIT and formed the MIT Energy Initiative. The purpose of the MIT Energy Initiative was really to elevate the focus across campus on energy issues and it did that in several different ways. One was that it was able to raise additional funding to bring in additional sources of funding from private sector sources and philanthropies to support an increase in energy research on campus. It was also a center for doing technical and policy studies on emerging energy issues. I got involved in the MIT Energy Initiative in 2007 or 2008 when I was doing consulting work for a large electric utility that had some issues with regard to understanding opportunities for carbon capture and sequestration from existing coal fired power plants. There were a very complicated set of issues that they were concerned about od technical, economic and policy concern. Knowing a little bit about the work of MIT, I thought the MIT energy initiative was the right place to go to get answers to these questions. So we led a series of discussions between the company and the MIT Energy Initiative people, and we had decided on a joint project. I helped to be sort of the middleman to arrange that. When the project got started, then Director Ernie Moniz asked me to help run the project. Then over time my involvement got deeper and I worked on the future of natural gas study, which was a major policy study that the MIT Energy Initiative did in the late 2000s when it was becoming apparent that unconventional natural gas was about to become a huge industry. We were taking a very close look at what the potential would be for both the supply of unconventional natural gas as well as what it would mean for end use markets.Given some of my engineering background and industry, I did a lot of work on that study looking at questions about natural gas use and industry and what potential demand might be. Given the fact that we now had this much more abundant domestic resource (which has proven to exceed all, all projections so far).
Sources of Natural Gas (20:00)
Bret Kugelmass: Where does this natural gas come from? Was this just the decayed matter of organisms hundreds of millions of years ago?
Joseph Hezir: Well, you can find some scientists who might say that and some that will say that it might actually be biogenic in origin, which is basically methane that was associated with the formation of the earth. So for example, there recently on the Apollo program and on the space program. For example, the Cassini probe found that there are oceans of methane on Saturn, and that's not from decayed plant matter. But getting back to unconventional, natural gas, for many decades we knew that there was methane that was trapped in shale rock. We also knew that conventional oil and gas drilling could not recover that in an economically attractive way. The original work to identify the resource was actually funded by the government through the Department of energy going back to the 1970s. This goes back to after the first oil embargo where the Department of Energy embarked on a major research effort to understand all of the domestic energy resources that we had. So we knew the resource was there, but we didn't know how to extract it and it really wasn't till the late 1990s/early 2000s where a combination of horizontal drilling technology, which had been developed by the oil industry, and hydraulic fracturing, which was also a technique that was developed in the oil and gas industry, was discovered. When you combine those two technologies, you can begin to recover gas economically and in large quantities.
Bret Kugelmass: Were they recovering more than they could use?
Joseph Hezir: In some parts of the country there is some gas that's being recovered in conjunction with oil where there's not a pipeline infrastructure. In other cases there have been production wells drilled that had been taken out of production because of the supply demand situation.
Bret Kugelmass: How hard is it for us to capture their carbon waste? What are some of the challenges in mandating that those plants capture their carbon waste?
Joseph Hezir: That's an area right now that's being subject to research. Congress has appropriated some money to do some work in that space. Capturing carbon dioxide from natural gas plants is a little different than of capturing that carbon dioxide from coal fired power plants because the concentration is lower. It takes more effort to capture that carbon, but some of the same technologies can be used if they are modified. Our view in some of the work that we've been doing here at Energy Futures Initiative, is that there is a significant potential opportunity to capture carbon dioxide from natural gas plants.
The Energy Futures Initiative (25:00)
Bret Kugelmass: So since you mentioned it, tell us the origin story of Energy Futures Initiative.
Joseph Hezir: Yes. When I was on staff at the MIT Energy Initiative, my colleague Melanie Kenderdine, she served as the Executive Director. When Director Ernie Moniz was asked to become the Secretary of Energy, he asked Melanie and I if we would be interested in going back into government and serving with him at the Department of Energy, due to our prior experience in government in government. During Secretary Moniz's tenure at the Department of Energy, Melanie became the Director of the Office of Energy Policy and Systems Analysis and I took the position of the Chief Financial Officer. After the election in 2016, we were talking about what our future plans might be and we've had several discussions about forming an organization to continue the kinds of policy work that we were doing at the Department of Energy. That really led to the idea of forming the Energy Futures Initiative (EFI). EFI was formed as a nonprofit organization and policy think tank. We are focused on finding innovative solutions, policy wise, to move to a low carbon future economy. This builds on a lot of the work that was done during the Obama Administration that led up to the Paris Agreement. At EFI, we've continued that work and focused on two things; decarbonization through innovation. We look at strategies for where technology innovation can lead to new solutions to decarbonize the economy.
Bret Kugelmass: There's two things I want to pull out there. What are some of the more promising innovations that you see, and is decarbonizing the economy even enough to prevent climate change? As a research organization, do you advise on policy as well?
Joseph Hezir: Yes. We're not an advocacy organization, but we do policy analysis studies. There are two ground rules that are very important is that all the work that we do, we retain complete control over our projects and all the work that we do is made public. We promote that work through our website, presentations, webinars, seminars, speeches, congressional testimony, and any kind of opportunity we have for interaction with the public and stakeholder groups.
Bret Kugelmass: What technologies have you guys done deep dives into?
Joseph Hezir: Early on we did a major study, that took the better part of a year and we were very fortunate to be approached by one of the organizations that was funded by Bill Gates called Gates Ventures. They were very interested in having a study done on the opportunities in the energy innovation space. So EFI teamed with another firm called IHS Markit, which is a firm that has done a lot of work, particularly in the oil and gas industry. Between our two firms, we did a major survey of what we call the energy innovation landscape, where we looked at current policies in that space. We looked at who the current players were, the resource capabilities, where the infrastructure was for innovation across the country, and also what we thought might be areas for breakthrough potential opportunities.We issued a major report on this in January that's publicly available. In that report we put together a framework where we identified some criteria for how the government and the private sector should be identifying and prioritizing new technologies for research development demonstration. We identified a total of about 20 technology areas that we thought were ripe for increased investment in innovation and, if successful, could have a significant impact on the marketplace in terms of decarbonization.
Bret Kugelmass: What were your top three technologies?
Joseph Hezir: Well my top three, are advanced nuclear reactor technologies (which is potentially a very large source of carbon free electricity), carbon capture and sequestration (of which we have one major demonstration in the US going on right now at a power plant) and storage technology. We have several major carbon capture demonstrations at industrial facilities, but I think we can do a lot more to improve the cost and the performance of that technology. We also need to do a lot more research on the sequence duration side, to look at opportunities for how much carbon we can safely sequester, particularly in geologic formations. I think that storage technology is very promising, and by that I mean not only batteries, but other forms of electricity storage. As the electricity market moves to greater penetration of solar and wind and intermittent generation technologies, there's a need to backfill those valleys. Right now we have the capability, with battery technology, to have short term storage (4-8 hours). We need the technology to be able to store electricity for periods of days, weeks, months, and potentially even seasons. And we don't have that technology today.
Bret Kugelmass: Isn't the net global effect that we've actually increased the carbon footprint?
Joseph Hezir: Clearly in looking at the opportunities for innovation in storage, whether it's batteries or other forms, you need to look at the entire carbon cycle and the entire life cycle. I would say in the case of battery technology, the bigger challenge longer term is, if we continue to the use of current battery technologies, uh, we would potentially begin to run into challenges with respect to the supply of critical materials, primarily cobalt and maybe to a lesser extent lithium. Which is another reason why we need innovation and additional battery storage technologies as well to look at different types of battery chemistries that are more earth abundant and are not carbon dependent.
Bret Kugelmass: Is anyone running the calculations on the global scale of the material consumption for if we were to actually do a complete decarbonization of the global economy? If this is to solve climate change, what is the total global consumption of these materials going to be?
Joseph Hezir: Most of the work that I've seen tends to be focused on looking at the 10 to 20 year projection, and more so looking at the 10 to 20 year projection in the US, Western Europe, and China. It's very hard to answer right now because to look out 40 or 50 years on a global basis, there's an incredibly large amount of uncertainty. That's why one of the hallmarks of the work that we do when we develop recommendations in a lot of these areas in our work is optionality. Whereby we are saying that, we shouldn't necessarily continue to follow the same path that we're on for the next 30 or 40 years. That's why we need a much more robust program of innovation to develop new options. Over time it will become more clear, which options might be the most appropriate for a large scale market deployment.
New Nuclear (30:00)
Bret Kugelmass: One of the things that also challenges me is the rhetoric around innovation, that it has to be some new breakthrough technology. Is it possible that we're just too focused on things being new and innovative?
Joseph Hezir: I think that there's more to the equation than that. One of the aspects that make advanced nuclear technologies very important is that the newer technologies all now embody various forms of passive safety features.
Bret Kugelmass: Well, are we saying that the 99 operating plants in the US are not safe enough? Why do we impose additional safety requirements, which surely are going to add cost, if we just said right now the ones that exist are safe enough? Why isn't at the end of the conversation?
Joseph Hezir: They're safe enough. First of all, I'm not sure that going from active safety to passive safety adds costs, it's different approaches and if it's done well it could be done efficiently. I also think there's a larger issue of public perception, which is that, just as in any product line over time, the public is always expecting something that's going to be better. In the nuclear space, if we're going to have a new generation of nuclear deployment, we want to be able to say it's better. The other aspect of it is that some of these newer technologies have the capability to better manage onsite fuel. When the current reactors were built, it was assumed that the fuel would be moved relatively quickly from the sites to some form of a storage or repository. While we're storing it safely on site now, it wasn't necessarily the original plan. I think we now need to think about building reactors where the reactor site would hold used fuel for a longer period of time.
Bret Kugelmass: It seems like the cost is very high for only achieving a public perception issue, right? The cost is billions of dollars in innovating something new, waiting tens of years and all the carbon emissions that are going to accumulate over that time period.
Joseph Hezir: What we're looking at is a very different approach in these advanced reactors in the sense that they are also being designed to be at a much smaller scale.The light water reactors that were deployed back in the 1970s and 1980s were on a much larger thousand megawatt scale. They were based on the notion of economies of scale, but they were also very customized projects that were stick-built built primarily on site. What we're now looking at as well with these advanced reactors is technologies that are more amenable to building at much smaller scale and building more of the components in a factory. So the opportunity's there, just as we've seen in electronics , to have the economies of mass production and the economies of learning by manufacturing. We're hopeful that we can begin to realize those same kinds of efficiencies in the manufacturing of advanced reactors. So I think the jury is still very much out as to where the economics of these advanced reactors ultimately will land.
Bret Kugelmass: I do think, you know, advanced reactors when they finally come around, could have the potential to be much cheaper as well. But I'm talking about is the cost of waiting, why isn't there a much more serious consideration to start building thousands of plants across the world so we can avert all that carbon cost that's gonna accumulate year after year while we wait for new technologies to come around?
Joseph Hezir: I think that's really not the trade off. The real trade off in electricity markets right now is whether you build anything that's nuclear versus whether you continue to deploy a wind and solar or whether you build a new natural gas. In the absence of a carbon price, natural gas generation is very attractive because of the fact that we talked about with the large supply of domestic natural gas and the fact that wind and solar both continue to benefit from a combination of state level mandates where utilities are required to buy a certain percentage of their power from wind and solar. Wind and solar also receive large federal tax incentives. So right now, whether it's an existing 1970s version of a light water reactor or an advanced reactor, both of those would have a great difficulty in competing in the current market in the US.
Export Markets for Nuclear Energy (40:00)
Bret Kugelmass: We all know that carbon is a global problem, and the US is only 15% of carbon emissions. So if we really care about the global climate problem, it doesn't matter if we subtract from the CO2 emitted in Nebraska or if we subtract from the CO2 admitted in India. So why aren't our efforts to start exporting whichever cleanest technology work across the globe and hit the areas that it's easiest first?
Joseph Hezir: There is interest in building an export market. I was just part of a task force at the Atlantic Council, and we put out a report where we made a number of recommendations for enhancing the US' position in export markets (where we're basically competing against Russia and China). For a number of these countries, for example, in the Middle East, they have the potential markets or some of them do for large scale reactors, but many of the other countries, may not have the market where they want to build a 300 megawatt plant. Some of these newer plants that are 200 - 300 megawatts or even smaller, have a better match to the market demand. We need to be thinking about getting one step ahead of the game here, and that's where the advanced reactor program is very important.
Global Decarbonization (50:00)
Bret Kugelmass: Let's say we achieved global decarbonization of every sector (industry, heat, transportation, electricity, agriculture) and we were meeting zero tons of CO2 across the world per year. That doesn't do anything about the rate at which we accumulate heat from all of our past emissions, isn't that the much bigger problem to solve? How do we actually get the CO2 that we already put in the air out?
Joseph Hezir: It's an excellent question and you're absolutely right. Looking at the climate science that even if you were to get to a net zero carbon emissions, in the next few decades, there would still be a certain amount of warming that takes place and a certain amount of climate impacts. I think that's really opened up another potential avenue, which is carbon dioxide removal, or removing carbon dioxide that has already been admitted to the environment, whether it's in the air or in the oceans. It's a new area that we are doing a major study project on right this minute and we are looking at what would be the research and development portfolio of projects to advance opportunities for carbon dioxide removal. There are some things going on in the private sector right now, particularly with direct air capture, on a very small scale, and the economics of that are very uncertain right now. So it's one potential promising area that needs a lot more innovation. We are also looking at opportunities for how one could isolate carbon that's already been in the oceans as well as looking at ways to technologically enhance the natural processes that soils and plants and trees have right now to capture carbon. We can do research on ways to increase the productivity of root structures to put more carbon into the soil or for plants to absorb more CO2 more quickly. Our next major report is on what we've been doing on this front, and we see the need for a new federal government initiative for research development and demonstration in this space to provide more options on the table for how policymakers can deal with the climate issue.
Bret Kugelmass: By definition almost, if we could address all those previous emissions, who cares what the new emissions are?
Joseph Hezir: We need to be working on solutions for both mitigation and carbon dioxide removal. I think implicit in your question there is a moral hazard in the sense that if you just simply focused on carbon dioxide removal, then it doesn't matter what we emit to the atmosphere. I don't think that is a pathway that policymakers or the public would find acceptable. I think we need to be doing both.