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Building Energy Policy on Evidence · Columbia Energy Exchange

• 0:00
  John Arnold (00:00:03): I've frequently been asked the question about why do I think I was such a good trader or had the success I did. I joked before that if you're a trader and you're not willing to change your mind, you're not going to be in that profession very long. Politicians frequently have the opposite incentive, and so they kind of oftentimes get locked into a certain position.
• 0:01
  Jason Bordoff (00:00:31): Elected officials face huge challenges when it comes to energy policymaking. I know from firsthand experience, they often have very little time to learn complicated, nuanced issues. They're bombarded by information, some of it from organizations tightly aligned with ideological or political movements, whether it's from industry or civil society. The information policymakers receive, even if accurate, can often come with an agenda. And translating academic research into policy comes with its own set of challenges. All of this makes building energy policy based on independent, trusted expertise, difficult, especially in a time of deep partisanship, but more needed than ever. So how can evidence and analysis best be used to design and build good energy policy? How can philanthropy drive innovative solutions to our most pressing energy challenges? Where are the disconnects between high quality research and thoughtful policymaking and how can those be bridged?
• 0:02
  (00:01:31): This is Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University. I'm Jason Boff today on the show, John Arnold. John Arnold's, a co-founder and co-chair of Arnold Ventures, a philanthropic organization that supports initiatives in a range of sectors. He's also co-founder of Grid United, which develops high voltage transmission projects. Previously, John was the CEO of Centura Energy. He started his career at Enron where he oversaw the trading of natural gas derivatives. John's also an advisory board member right here at the Center on Global Energy Policy and on the board of other organizations, including Meta. John and I talked about his career from Gas Trader to hedge fund founder to philanthropist. John explained his theory of change and his approach to philanthropy. We also discussed what he sees as zero trade-off opportunities for building energy infrastructure and where we are in the energy transition today. I hope you enjoy our conversation.
• 0:03
  (00:02:37): John Arnold, welcome to Columbia Energy Exchange. It's really great to have you on the podcast and finally get to talk to you here. Great to be here. I was joking with you yesterday that having you on the podcast should be like a 10 part miniseries because there are so many topics that I want to talk to you about from your career to climate and energy policy, philanthropy, higher education. And I think rather than take up your time with a multi-part miniseries, we're going to try to do all of those things under an hour and probably may have to have you back many times after. And I wanted to do all of that because I've been lucky to have benefited personally from lots of conversations with you over the years, which are always thought provoking at times challenging, the kind of advice and ideas that you have on everything from energy policy to how to build a successful organization that has impact in the world and much more. So I just want to thank you for all of that. Sincerely, you're one of the smartest people I know on all of these topics and we've benefited. I've benefited a lot and the center I know has and I know that our listeners are going to benefit from hearing your thoughts about all of these topics and more. So thanks for all the conversations and the advice and the help you've given me and excited to have this conversation with you. So thanks for being here.
• 0:04
  John Arnold (00:04:00): Thank you for the very kind words and I think this has been a very beneficial relationship on both ends of this. I've greatly appreciated getting to spend time with the center, getting to develop a strong relationship with you and seeing everything that those in the center are doing and saying
• 0:05
  Jason Bordoff (00:04:18): Thanks. That means a lot. I really appreciate it. Alright, so let's start with your story, which is really quite a remarkable one. People listening may know a little bit about it. They may know nothing about it and they may not really know Enron or to the extent they have heard that name, they may know it only in the context of scandal and movies and such that were made about it. But maybe explain a little bit how back in that time in the 1990s, how central a role Enron played in the energy sector. How would you help people understand that? And then what does it mean for someone at 23, 24, 25 to become the head of gas trading at such a massively influential company at the time? How does that happen?
• 0:06
  John Arnold (00:05:04): I'm guessing your audience knows Enron. I've found pretty much everybody still knows that the company Enron if only for the scandal, but Enron certainly did a lot more and for a while was really the innovator and leader in deregulation of energy. And a lot of their business originated as the natural gas industry was getting deregulated. And there was always this, I think, struggle from regulators trying to decide what to do with natural gas because it has some components of being a natural monopoly. It has some components of being competitive. And I think eventually they figured out that the transport interstate transport of natural gas had more characteristics of a natural monopoly and that should be heavily regulated. But the upstream and downstream components are very competitive and that should be deregulated.
• 0:07
  Jason Bordoff (00:06:04): And that was a policy challenge going back decades, the Natural Gas Act and 1930s and Carter deregulation in the late seventies. This has been going on for a long time.
• 0:08
  John Arnold (00:06:13): Exactly. And then finally finalized that process in the eighties and then it kind of Enron, which had been historically a natural gas pipeline company and had a medium size EMP connected to it as well. Then it decided that they were going to become an intermediary in the business. So as soon as the pipes became regulated, what that meant was that I know this industry that for the most part had been fairly tightly integrated, was now broken. It was broken apart. And so the buyers had to find the sellers. And oftentimes where the buyers wanted the gas, the term that they wanted, the gas, the pricing mechanism, the profile of volumes didn't exactly match what the seller preferred. And so the same way that a bank would step in and people who are depositing money in the bank and people who are borrowing money from a bank often have very different characteristics about how they want it, the sums for the duration, the interest rate, et cetera.
• 0:09
  (00:07:32): Enron kind of served that purpose. And in fact, it's the original term for their merchant efforts was a gas bank. So it really started as a trader, as an intermediary, logistics and building and then quickly built up some of the finance characteristics around it and became almost an investment bank to the natural gas industry. And then kind of broadened that out into other aspects of the energy industry and then even into other commodities. So when I came out of college, I really wanted to go do the New York investment banking route. I didn't know much about it, about what it really meant, but I had read Liar's Poker at the time and that was really a formative book for me. And I was very competitive. I was a math guy, but very entrepreneurial and Wall Street seemed like the biggest, most competitive game that I could imagine and applied for those jobs. Didn't get it. The closest job I got coming out of college was at Enron. And again, it was kind of the investment bank to the natural gas industry at the time. And so started there when I was age 21 and hours out of
• 0:10
  Jason Bordoff (00:08:57): Graduating college, if I remember correctly.
• 0:11
  John Arnold (00:09:00): Yeah, exactly. And I got lucky enough to have my first rotation in the trading side, which was pretty rare for somebody with just an undergraduate degree. But it turned out just to be the perfect place for me to be really suited my skills and then instead of rotating around to different parts of the company, I just stayed in trading for my career there.
• 0:12
  Jason Bordoff (00:09:23): And I've heard you explain before that if one were to design a commodity perfectly suited to trading, it would be natural gas in the 1990s. Did I hear that right? And why is that?
• 0:13
  John Arnold (00:09:34): Yeah, it was a commodity that was at the time was almost purely a domestic or it was a closed system. There was a little bit of LNG imports at the time, kind of ironic today, but LNG imports, but they mostly looked like a base load supply. And because of that, it was easy to model or kind of straightforward to model. It wasn't easy, but there was a pathway to modeling it. You didn't have the geopolitical events that could send and exogenous shocks into the system. You did have other shocks, particularly weather, both in heat and cold or in hurricanes, but you also had, it was a commodity that even today is marked by relatively inelastic demand and supply. In both the short and medium term that's changed somewhat. The supply has become more elastic with shale gas, but certainly back in the nineties and two thousands, it probably took nine, 12 months before you had a price move and that could be met with new supplies in the market.
• 0:14
  (00:10:49): And a lot of the demand was also relatively inelastic on the short and medium term in that any residential demand, it took a cycle to go through for the gas company or for the electric company to go to their regulators asked for higher prices in response to a price jump in natural gas. And for that to hit the consumer and the consumer to start making different choices. And I think a lot of industrial load as well just wasn't as smart and sophisticated as they are today about trying to manage their demand vis-a-vis price. And so you had on this market that would take very big price moves in order to balance a even relatively small supply demand imbalance. And then to top it off, it was one that the market really had to be within a certain window of storage twice a year coming out of the winter and going into the winter. And so the market could only misprice or have deviations away from fair value for so long. And at some point you had to get back to reality. And certainly in some other financial markets, you can have these very long stretches where the fundamentals aren't necessarily reflected in prices. But in gas, at least every five to seven months, you had to have these two come together.
• 0:15
  Jason Bordoff (00:12:25): And so that sort of the realities that inventories had to be at a certain level. So once or twice a year, the market has to balance the lack of exposure to geopolitics. And I would guess the other is access to information and the kind of models that you built. And is that, I presume that would be harder to do today. That information is much more accessible to everybody who might want to do that sort of thing?
• 0:16
  John Arnold (00:12:49): Yeah, that's exactly right. So you think about the oil industry where Exxon can own the deep water platform, extracts their oil, sticks it on their ship, can take it to their refinery, put it on a pipeline, even sell it in their gas stations. Now it doesn't work exactly like that, but there's much less information transparency in the oil market because of the vertical integration. Now, again, because of FERC order 6 36 and kind of that final deregulation that happened that separated out the pipelines and made them independent entities that had Chinese wall between upstream and downstream, they were then required to communicate in a manner that was fair to everybody. And so they would post their data, and they still do this today, online now, it wasn't very user-friendly. You had to know where to go to get it, had to understand how to build a model and how to use that information in a manner that was value creating. But I think if you could do that, if you knew what to do, if you had the motivation to do so and were smart and clever with data analysis, you could build models about and of how various aspects affected both supply and demand in the past and then by doing that allowed you to make forecasts about supply demand in the future and where imbalances should go.
• 0:17
  Jason Bordoff (00:14:29): So fair to say you probably could not do today in gas trading, what you did back in the two thousands and 1990s. Well,
• 0:18
  John Arnold (00:14:37): I think every financial market, it becomes more efficient over time. And there are times when somebody comes up with a new strategy or finds a new inefficiency or a new piece of data that others don't have and can use that to make money in the markets, but there are no long-term secrets and that information gets out one way or another. Somebody leaves the company that created that profitable trading strategy and they have knowledge, they go across the street and then now two companies know it and then somebody leaves there and goes someplace else and now three companies. And so these things always get out. And I think over time, natural gas, just like every traded product has gotten more efficient. I think it constantly gets harder to have an advantage in markets, but people do. And so it's not impossible, but it definitely gets harder over time. I
• 0:19
  Jason Bordoff (00:15:42): Thought you were going to say it's no longer possible because there is no longer a velvet Elvis, which is my favorite image of you as a young trader. You can tell everyone listening what I'm referring to, but I'm picturing you smelling like cigar smoke and sitting there.
• 0:20
  John Arnold (00:15:56): So the nineties and I got started in the industry in 1995 and Enron was doing this, but they weren't the only one. There was this burgeoning industry of a lot of natural gas companies and some power companies that were building these trading shops. There was frequently, it was generally men or boys, and a lot of them were fairly young, twenties, early thirties that kind of populated the industry. And there was kind of a big social dynamic in the industry. So we would all compete against each other during the day. And then oftentimes we'd go out at night and one of the favorite haunts of the industry was this bar in Houston called the Velvet Elvis, which had that Elvis theme throughout until they were sent a cease and desist letter by the state of Elvis Presley. And I think rather than fighting that, they decided to rebrand and called it the Velvet Melvin, which was close enough saving blower. They had to take down all the Elvis
• 0:21
  Jason Bordoff (00:17:07): Pictures. Alright, I'm sorry, it's no longer there. Otherwise we could go the next time I'm down in Houston. So you're phenomenally successful at this both at Enron and then even more so starting your own hedge fund focused on trading and gas and investment, and then you leave at the peak. This is like Bjorn Borg walking away from tennis or Michael Jordan from basketball at least the first time. Why did you do that?
• 0:22
  John Arnold (00:17:34): Yeah, and maybe it's just worth commenting. So yes, start at Enron, the trading floor again, it was a fantastic place to work as a young person because if you showed ambition and responsibility and smarts, you could move up and get more responsibility faster than you could at a more mature or established company or mature industry. And so by I think age of 25, 26, I was promoted up to the be the head natural gas trader at Enron. This is around late 99, early 2000, and just kind of a remarkable time. It was a whirlwind and got to see the company do the ramp up and then kind of the very quick ramp down, which was, I learned a ton in that time, cried tears during that time. But coming out of it, I think it was an extraordinarily traumatic time for older people at the company who had fewer options and had more of their financial stake tied up in the company for a young person.
• 0:23
  (00:18:50): It kind of gave me a kick in the ass that I needed to go figure out what I wanted to do next. I was very happy there and could have stayed for a long time, but I decided to open up my own firm and this was sent Tous Capital Advisors sent energy and just ran very much the same business that I was doing at Enron. Instead of using a corporate balance sheet, was using private capital in a hedge fund structure and ran that from 2002 to 2012. And like you said, I closed it in 2012 after I had this fantastic 10 year run for a number of reasons had been the only thing I'd done for 17 years and I was had kind of lost my passion for it. And I think the trading is so competitive of a field that if you're not bringing a hundred percent every day, you're not going to succeed. And so I was getting worried about that. I had reached and met all my professional goals, I had very significant financial rewards for that, and I started to think about what I wanted to do next. I just wasn't getting the satisfaction from coming to work every day like I used to. And my wife and I had in the meantime kind of midway through Centura Energy, it started to become more philanthropic. We had originally focused on K through 12 education reform, which was a very vibrant and robust sector and issue at the time.
• 0:24
  (00:20:41): And then as the years started to spin from the mid two thousands into 2010, early 2000 tens, we started increasing the scope of our philanthropic activities and really started to think about a broader domestic public policy. So things like the criminal justice system, healthcare system, the public finance and unfunded pensions. And so in 2012, I was spending my mornings and days at the Trading Energy and then late afternoon I'd go over to the foundation office and I was finding myself even more interested in the ladder than in sitting in front of the computer with the clicking on a mouse all day. And so by 2012 I said, this is time. And it closed down Centura energy and went mostly full-time at the foundation.
• 0:25
  Jason Bordoff (00:21:47): And talk a little bit about your theory of change in philanthropy and how you've organized Arnold Ventures and particularly evidence-based policymaking. I mean, there's a lot of philanthropy as there probably should be focused on building movements on activism, on communications, on changing the political reality to align with a particular objective like climate action or something else. I think a lot of that can be important, but it's always struck me that when you create that moments for doing something in the policy space, the question is what do you do? What actually works? What policies are effective and what less? So that's a lot of, as you know what I have tried to build here at the Center on Global Energy Policy, what I think is so important, and my sense is not everything you fund, but a lot of what you fund is, is that how do we design good policy using evidence and analysis, but talk about the foundation?
• 0:26
  John Arnold (00:22:46): Yeah, that's exactly right. And so first thing we start with is evidence. And sometimes that evidence exists, oftentimes we have to fund it. And so I think there's more and more demand for data and for evidence in policymaking and in just even funding programs, there is a shortage of high quality, high integrity research oftentimes and further, there's that need for translation between research and policymaking. So oftentimes academics and policy makers are living in two different worlds
• 0:27
  (00:23:26): And things that are well known in academic circles or even in think tanks still need the translation to policy makers. And so both of those we thought were shortages. And then I think there was a shortage of non-ideological nonpartisan policy support. And most of the think tanks are associated with the left or the right. Most advocacy groups are associated with the left or the right. I think our view was that the easy problems were solved a generation or two ago. This generation has the hard problems and there's not necessarily one political ideology that's right for every problem. These things are complicated. How do you structure a healthcare system to meet all the goals of healthcare or a criminal justice system, meet all the goals of criminal justice or the energy system? And so these are complicated problems that require nuance and one political ideology might not be the right answer for everything that we're facing.
• 0:28
  (00:24:40): And so what we kind of found there to be a lot of white space of can we be a neutral arbiter who comes in and helps policymakers understand the research but also can do so without having financial ties to the field? So one of the things we found is that most people who go into a member of Congress's office are there to ask for number one more resources for whatever their thing is but are doing oftentimes have some type of financial interest in the system. And so it makes it very hard for a policymaker when somebody has a financial interest and they're the ones who know more about the topic oftentimes than the member of Congress. And so what do you do? And so one of our roles I think is try to square that and be that neutral arbiter and someone who comes into a problem without ideology, without partisanship and without financial interest and just can convey what the field knows, what the open questions are, how strong the evidence is about what works and what the ideas are as to what to do to solve a problem.
• 0:29
  Jason Bordoff (00:26:05): Well, that resonates as I think that really was the motivation for starting the Center on Global Energy Policy sitting in a policymaker seat and my sense that you had so little time to get up to speed on complicated issues, understand them and you're bombarded by information. But a lot of that information, as you said, is sort of advocacy information. It might be from industry, it might be from civil society, and some of it's good, not all of it, but it has an agenda. It's kind of produced with an agenda in mind. And the question is, who can you turn to for independent trusted expertise? Academia has a lot of that independent, trusted expertise. It's just not always as helpful as it should be to putting that expertise in the hands of decision makers in the formats and timeframes they need.
• 0:30
  (00:26:49): Anyway, that's what we've tried to do here, and it's really important to have places like the Arnold Foundation prioritizing work like that. I'm wondering, you said a moment ago, there's more and more demand for evidence, and you talked about nonpartisanship and it's I think easy for some people to listen to what you just said and say is that the world we're in, if you really want to drive impact on issues you care about, expertise seems sometimes more and more derided. We're seeing the partisans pendulum swing more steeply from one side to another where even the normal course of business in Congress seems almost impossible to imagine in both sides of the aisle are using reconciliation tools for complex issues like climate or healthcare, you can't even get to 60 votes. Do you think differently about your approach today or do you think it's more needed than ever?
• 0:31
  John Arnold (00:27:37): Yeah, so I think we think a lot about how do we create solutions that are structural, scalable and sustainable. And I think this last word sustainable is really important, especially when we're looking at federal policymaking. I think anything that is done with just one party is inherently at risk as you see with the IRA
• 0:32
  (00:28:03): And I imagine if and when the next time that Democrats have full control tax codes going to look a lot different than it does today. And so you can influence through pure partisanship or partisan legislation, some things for a certain amount of time, but there are a number of areas that require 60 votes in the Senate and those things are much more stable and sustainable. And so again, there is a robust and vibrant ecosystem of partisan think tanks exists on the left, exists on the right, and I think that's healthy. They should be there. They serve a purpose. But I think there's a shortage of lows that are truly nonpartisan, truly trying to approach issues with as minimal bias and ideology as possible. And when we can find members who have the political will to try to address a problem and are open to solutions, and oftentimes it's those issues that might not make the front page of the paper that are easiest to work on, anytime something is front page of the paper, then you start having to deal with the political effects of that legislation and it makes it harder.
• 0:33
  (00:29:41): But I think that's the reality of DC today. Now we also work at the state level and many times states are easier to work in. One of the big reasons there is that they can't just solve problems by throwing money at it. 49 out of 50 states have a balanced budget amendment. Now some of those are harder, some of 'em are softer, but they all more or less have to balance their budget each year. And so they're more used to dealing with trade-offs. And I think, again, the issues we face today, these are the hard ones, and oftentimes there's associated with these and state legislators, one, they're not on the front page of the paper as much. They're not hitting talk radio as much and they're more sensitized to the trade-offs that are necessary.
• 0:34
  Jason Bordoff (00:30:37): I'm listening to you and I'm sort of wondering whether I feel like I'm psychoanalyzing you, but I'm wondering whether that you're describing in a world that is so hyperbole driven, so polarized, MAGA rallies, no kings rallies, the sort of temperament, if that's the right word, of staying focused on evidence-based policymaking, looking beyond the front page being sort of even keeled. It's like an emotional detachment from issues that are incredibly important in society and for the future of humanity. But I'm wondering if that's almost what made you a really good trader is kind of that temperament.
• 0:35
  John Arnold (00:31:19): I laughed when you said that because I've frequently been asked the question about why do I think I was such a good trader or had the success I did. And I think it's a number of things that kind of all work together, but one of 'em certainly is the emotional detachment. I joked before that if you're a trader and you're not willing to change your mind, you're not going to be in that profession very long. Politicians frequently have the opposite incentive that if they ever admit that they were wrong, they gets used against them by their opponents. And so they kind of oftentimes get locked into a certain position and you frequently see whatever they do change their mind and someone catches them on it and pulls up the clip. Five years ago you said X, and now you say Y, right? If you're a trader and it was yesterday you said X, and today you say Y, that's almost a compliment, right? That means you're taking new information and willing to change your view. And it does take some of that emotional detachment and being able to separate out of what's the problem, what's the question? And am I willing to second guess myself at all times?
• 0:36
  Jason Bordoff (00:32:37): So energy is certainly an area of very important policy decisions that is rife with emotion and rhetoric on all sides, a sense of concern about the alarming reality of climate science and lots of other things, including on the other side with people more skeptical of it. I'm wondering with that approach you just described and how you think about where the focus of research should be at organizations like ours or in philanthropy for organizations like yours, this moment of reset, pragmatism, realism, whatever word you want to use to describe where we are right now in this conversation. And of course the pendulum is going to swing, but you want to think a little longer term. How do you assess this moment we're in when we think about meeting our multiple energy policy goals, addressing threat of climate change and decarbonization also energy security, also affordability and reliability? Where are we now and what does that mean for where we need to go from here?
• 0:37
  John Arnold (00:33:38): And I'll start with this last point of thinking about what are the goals of a system? And that's what we do here at Arnold Ventures. We work in a lot of systems, healthcare system, education system, criminal justice system, right? Energy system has its goals and has the goals of affordability, reliability, security, sustainability might add providing good jobs in the us. And I think when, when my wife and I started this foundation, we didn't work in energy and at the time I was still in the energy space, so I didn't want to work in energy policy because there was that natural conflict. But we started going to, I have a lot of philanthropic events oftentimes on west coast or east coast and I live in Houston, work in Houston, and I was just hearing very, very different things. And the climate change issues were large and growing and the coastal philanthropic circles at the time.
• 0:38
  (00:34:54): And I'd go there and I'd hear one thing and talking about wind and solar renewables climate, and then I'd come back to Houston and then I'd hear about oil and gas and the problems with affordability and reliability with renewables. And to some extent the two sides were talking past each other because they didn't sit down to think about what all the goals of the system were. And I think you can imagine a lot of trade-offs or solutions that have trade-offs with those goals. For instance, if you build a system just with renewables, intermittent renewables, you will have some reliability trade-offs that you're going to have to deal with. You can think about, we have this debates about energy security with Chinese solar panels today. And so there's this trade-off of energy security versus affordability. Chinese solar panels are cheaper between reliability and affordability. And so how much backup do you build into the system?
• 0:39
  (00:36:08): And after storm URI is the question that Texas has dealt with about how much money a taxpayer or rate-based money do we put into building a more robust energy system? And so I think those discussions and debates are really important and it's important to have the right information as policy makers are trying to deal with those trade-offs. Now, there are some areas of energy policy or the energy system where there might not be trade-offs. So on name three, one is demand management I think is just kind of a net positive. I think adding transmission where you have system optimization across geographies is a net positive or neutral to positive in all goals. And I would probably add in batteries right now. And so there are these things that don't necessarily have trade-offs and policy needs to be highly supportive of Lowe's. And then there are areas where there are trade-offs, and then we just need good information to have real debates about how to think about those trade-offs. And I think,
• 0:40
  Jason Bordoff (00:37:34): And those would be things like permits for LNG exports or accelerating the shift to EVs or I mean a range of policies like that. Exactly.
• 0:41
  John Arnold (00:37:43): And you can think about trade-offs in
• 0:42
  Jason Bordoff (00:37:45): Many, many policy proposals. You're also on the board of meta, so you have sort of a unique view, I think of this AI boom we're going through and what it means for the energy sector either to be a tool to help manage the energy sector better, maybe help clean energy deployment, but also just staggering growth in power demand, particularly in certain parts of the country. Do you think those power projections, the growth is overblown or underplayed? How are we going to meet that growth? Does it need to be all of the above strategy people talk about today? And what do you think the impact of AI on the energy sector, where are people getting it right and where are they getting it wrong?
• 0:43
  John Arnold (00:38:25): So hard questions. I'm always amazed that if you put five AI experts into a room together, you get five different opinions about what the sector looks like even a few years from today. And I started getting introduced to AI probably late 2010s. And that was true then that people had very wide ranges as to how they saw even the medium term future and it's true today. And so I think this is one of the challenges, one of many challenges in the field is that we're asking for supply chains and for infrastructure to be developed, but we don't know exactly how much we need and what it's going to look like in the future and who's making those commitments, whose balance sheet is guaranteeing that build out. And I think one of the things you're seeing is that I think everybody can agree, at least in theory, it shouldn't be the rate payers for the existing rate payers of the power companies, of the utilities that this tech sector, the AI sector needs to pay for the infrastructure development and take that risk.
• 0:44
  (00:39:52): And the hard part is that there is a group of companies that, or some of the largest companies that have ever existed in humanity that are growing at very high percent a year and have strong margins and have the ability to finance or make the guarantees and commitments for much of this off their own balance sheet. And then there are others, there are companies that are much newer that don't really have credit worthiness. And how do you balance that on both the commitments that are being required for new generation but as well as decisions that are being made by much of the supply chain that's being asked to increase their ability to provide power and provide data centers in the future. And they've certainly had instances in not too distant past where they've ramped up supply chain or they've ramped up their capacity in response to strong orders in the near term that then it suddenly goes away, not too distant future and have faced a lot of losses. And so I think that's one question.
• 0:45
  (00:41:10): I think another question is just what's the right fuel mix going forward and how's that managed? We have six ways that we produce power at any scale in this country today. Three of 'em, nuclear, hydro and coal have been flat to declining for the past decade and are going to be flat to declining generally for the next decade. Perhaps nuclear starts to ramp up in the 2030s, maybe, maybe not, but that leaves three sources to try to power all the growth and the old facilities that are just reaching the end of their useful life. And that's wind, solar and natural gas. You're not going to do it with any one of those
• 0:46
  Jason Bordoff (00:42:05): Geothermal.
• 0:47
  John Arnold (00:42:06): Yeah, geothermal might be at scale in the 2030s, but certainly for the next five years we won't see it at scale. So the question is that they have to work together. The natural gas generation supply chain is famously or infamously very tight right now. You just cannot, the industry cannot supply what the data centers are calling for right now. And so there needs to be this all of the above viewpoint, and I think that's kind of what's happening now. It'll be interesting whenever the IRA tax credits do go away, I suspect that the particularly solar industry will be stronger than what is commonly viewed today just because of in the speed of bringing power and the relative cost. But again, you can't build the electrical system on solar alone, and so it's going to take a mix of resources and add batteries to deal with some of the flexible or some of the volatility in both supply and demand of power and you create a system that can work.
• 0:48
  (00:43:32): And I think Texas and Ercot are this fantastic example and I think generally a strong success story today of how different types of resources can work together and have varying loads worked and that the market generally works. We can debate Yuri in about how much of that was a one in X year event and how much do we need to try to safeguard and ensure against a future, Yuri. I think that's more of a policy question, but the Ercot works better today than it did five years ago, even though load has grown significantly since then.
• 0:49
  Jason Bordoff (00:44:21): I mean listening, hearing the example of Texas hearing you describe what are the potential sources of power generation and we're going to need all of those and which ones have the potential to grow in the next five or so years, and which less so kind of I think takes you to a place where despite the perception it seems to me of including some in this administration, I think it's fair to say that real power is 24 7 power, solar and wind. Yes, there are intermittency challenges and you got to manage those on the grid, but just the economic realities, even without IRA subsidies, the balance sheets these hyperscalers have to work with, you still see a robust outlook for solar and wind just because we're going to need the power unless maybe, and we'll come to this in a moment like permitting is just not forthcoming.
• 0:50
  John Arnold (00:45:08): And I think permitting hits all of 'em. Permitting hits wind, solar, and it hits natural gas, right? Yeah. It's been a number of years since a company has brought on a greenfield natural gas interstate pipeline with the exception of Mountain Valley Pipeline, which took an act of congress in order to get that one through. There's a few brownfield additions happening or little extensions. There's an announcement of Desert Southwest going from the El Paso Permian area to Arizona that has not started construction yet. It'll be very interesting to see, but we've had six or eight different interstate pipes, oil and gas over the past 10 years that have gotten cotton permitting hell and have cost their sponsor nine or 10 figures because of that. And so you've just seen the industry say, we are not willing to move forward a new interstate pipe without permitting certainty to really put significant dollars into the ground.
• 0:51
  (00:46:24): And this is an industry that used to looking back 15 years ago when they had high confidence about the ability to permit, and there was kind of this well-known list of things that if you did these steps, you would get your permit and if a company got confident that it could meet those steps, they would start investing before they had their permits. And this is one of the issues where companies got in trouble was that that list changed and it didn't change formally. It changed because how courts started interpreting certain rules and how opponents to projects started using some of the environmental laws in clever ways in order to kill projects, clever for them to kill projects. That was a very new thing and that's why a lot of these pipes had been years in the making, had hundreds of millions or billions of dollars invested in them and they got stuck and became financial albatrosses.
• 0:52
  (00:47:32): And so it really kind of points to the need for permitting reform for everything, for all sorts of energy. Again, kind of wind, solar, gas, it is increasingly hard to build linear infrastructure in this country of any sort, whether that's rail or telecommunications or transmission lines or pipelines or roads. And that's having real effect on people's lives and it's getting hard to build any individual energy infrastructure or energy source. And so winds getting harder to permit, solar is getting harder to permit. We've seen l and g exports getting were harder to permit a couple of years ago, a year ago.
• 0:53
  (00:48:26): And this is an industry that needs time in order to build up robust supply chains. It needs certainty for investors to put the capital up. This is an industry that has very long life assets and there has to be the confidence that Lowe assets can live under a permitting regime and a regulatory regime. And yet every four years it seems as if we have a different permitting and regulatory regime and has made it extraordinarily hard for the industry and makes the energy system in the United States much weaker and less likely to achieve our goals. Sorry for the rant.
• 0:54
  Jason Bordoff (00:49:12): No, no, no, it's really helpful. It reminded me, I wrote a piece I think four or five years ago in the New York Times. It was a day when a couple of oil and gas pipeline sort of suffered major legal defeats. And the point of the piece was a little be careful what you wish for because some of the same tactics that I saw being used to block that infrastructure, it seemed to me could easily be used to block clean energy infrastructure. And I think we've seen some of that play out in the last few years. I'm curious, just one quick thing because some people I'm sure listening to this might hear you talk about how these are long lifed assets and say, yeah, but that's sort of the problem when we're talking about hydrocarbon infrastructure, that the world needs investment today, we need to meet rising power demand, but we're trying to change this system over time driven by the reality of the math of CO2 emissions. How do you think about that tension?
• 0:55
  John Arnold (00:50:01): Yeah, we talked earlier about the goals of the system. I think if you lose any one of those goals, the system becomes inherently unstable. And I think first there is affordability and I think second's, probably reliability. And that's just the revealed preferences of people. Even though the energy system has done a fantastic job over the course of many decades of being a smaller and smaller percentage of people's disposable income, the politics around cost increases on energy are very real, very, very real. And if you ever lose the affordability or even the perception of affordability, then that solution becomes unstable. And I think on reliability as well, that if people don't like when the power goes out, people don't like when they can't get fuel that they need and that becomes very strong voter behavior and they will vote out and reject the policies and the politicians that instituted those laws that they believe or have been told were responsible for it. And so I think that's important to understand that that always has to be front and center, this reliability and affordability issues while at the same time acknowledgement that the system has to become cleaner and more environmentally sustainable over time. Now, if we can argue, and there are very strong debates now about at what speed do you go and how do you meet some of those trade-offs that exist?
• 0:56
  (00:52:09): And I won't say I have the right answer or I won't even put out what I think the right speed is. I'm not sure if I know, but I think it's these are issues and I think there's value, there's enormous value to having the system becoming cleaner over time. But again, it has to exist for a mandatory condition for Lowe's for that process to exist is that the system remains affordable, reliable,
• 0:57
  Jason Bordoff (00:52:44): I hear you saying is you can't sort of have a view on that in your view without sort of grappling with those trade-offs and considering all of those issues and people may reach different results, but you spent a lot of time also on this topic, we were just talking about a permitting reform and there was actually a quite significant Supreme Court case this summer that in some sense addressed some of those issues and made the potential to block projects with NEPA litigation. I think lower. That's the long run take of that. Do you see potential for legislative action on permitting reform anytime soon?
• 0:58
  John Arnold (00:53:17): Yeah, so just as a reminder to listeners mentioned Perso was permitting reform that passed out of an Senate committee 15 to four last I guess about 18 months ago. Had we had split government after the elections last year, I think that would've gotten adopted. I think there was strong bipartisan appeal for that. Had there been unified government, then I think either party would've tried to see what they could do on their own for their favored fuel sources and then try to get more leverage in the negotiations. And so that's what we saw happening. I think it is very clear that there's strong limits to what can be done through executive order. Courts don't respect executive order, especially state courts where a lot of these projects are getting into the most trouble. And so I think I'm seeing a lot more interest in permitting form than even we had last year.
• 0:59
  (00:54:30): And part of it is that the Manchin Braso was kind of pitched as a pipes for wires trade that the Republicans got to build pipes and the Democrats got to build transmission lines. I think of both lows are seeing less opposition today. So you've had at govern of Lamont in Connecticut come out and say that New England needs new gas supplies and has been quietly advocating for pipelines from Marcellus up into New England. And at the same time you're seeing Republicans have shown more interest in transmission that the AI and data center build out is probably rightfully viewed as a national security issue. And that leadership in the US of that is deemed of national strategic interest. And in order to maintain that and continue that, we need the build out of the power grid. And so I've seen a lot more Republican interest in discussion about transmission this year than even 12 months ago. Now. All that being said, getting bipartisan legislation in anything today seems difficult. And I think that's the challenge. If there is major bipartisan legislation that happens in the rest of this congress besides a budget, which hopefully one day we get one of those, then I think that bill would be a permitting reform.
• 1:00
  Jason Bordoff (00:56:16): You mentioned earlier if you stay off the front things on the front page and sort of focus a little bit behind the scenes, you can find some areas of bipartisan cooperation on energy and climate. Is that an example of what you had in mind or did you have, what's one or two other examples of what you were thinking about?
• 1:01
  John Arnold (00:56:31): Yeah, I think that's a major one. I think the challenges that we're seeing in the energy system about, again, how do you meet the load growth we're seeing and maintain the goals of the system is forcing everybody to be a little bit more pragmatic. And I think that's a positive. Again, there are some things that are free lunches in energy, many things have trade-offs, and so that's where the debates are and I think those are healthy, but there are these discussions that are happening and some of these barriers and in constituencies that have happened in the past I think are getting the less,
• 1:02
  Jason Bordoff (00:57:21): This is a larger topic than can be done justice in just a few minutes we have left. But I did want to ask you because sitting here inside an institution of higher education and I guess an elite one in the Ivy League, this sort of moment we're in higher education, the sort of backlash against the perceived whatever word you want to use, wokeness left lean of elite institutions, you're alma mater Vanderbilt, led by a mutual friend of ours, Dan DeMeyer, who's been one of the more vocal leaders in higher education about the need to have these institutions be more welcoming of a diversity of viewpoint and allow more diverse thought. Do you share that concern with higher education and is this leaving aside for a moment like cutting funding or even this compact or what Trump did, but that broad need to change something about higher education?
• 1:03
  John Arnold (00:58:19): A hundred percent. And we've been supporters of a group fire, which has historically been the free speech organization on higher ed. We supported them for over 10 years now because it's not something that's just crept up in the past two years. It's not something that just crept up since 2020, this has been I think a concerning trend on campuses of higher ed for many, many years. And I think one of the roles of higher ed institutions is to support open debate and free expression and allow people to share views in a safe manner. Obviously nothing is completely unlimited, but I think that the bias should be towards more freedom of expression on campuses. And we've had a two decade trend of less and less freedom of expression on campuses
• 1:04
  Jason Bordoff (00:59:30): Because there is not a lot of diversity of viewpoint among students and faculty or because people in your view, they fear repercussions or something.
• 1:05
  John Arnold (00:59:39): Those are kind of related. And I think students who are 18 to 22 year olds who kind of self-select into these highly selective institutions are not have a broad random assortment of Americans and they tend to be more progressive than the average person. And then I think over time, and there's been a lot of academic work on this, is that if you put people with similar views together that they will enhance their own views, it becomes a circular thing and that they, I don't want to use the word radicalized, but they become more extreme in their viewpoints just in because they're only hearing each other talk and they kind of become self-reinforcing on their views. And so I think diversity is important in all components on a college campus including and of political views and ideological views. And that's something that to some extent, you've had that and there's been self-censoring because people were scared of saying something that the majority on campus didn't like, and that's not a healthy dynamic.
• 1:06
  (01:01:07): And so I think the question is what to do about it now that the problem has been identified, what to do about it and what I would like to see the universities figure this out on their own. And I think that is happening. I think we're past the worst point of this. I don't think that there's a role for the federal government to get into the university's business in this particular issue, but I do think universities are starting to ask themselves the question, and every university doesn't have to have the same answer on this. There is a diverse set of universities, but I think we need to make sure that these institutions are one that facilitate free expression and debate because that's how people learn.
• 1:07
  Jason Bordoff (01:02:07): What do you advise young people about the value of higher education? I mean, this is kind of a pretty increasingly common view it seems in Silicon Valley and tech entrepreneurs just skip the whole thing. I remember you on a podcast one saying you were trying to study for the GMAT while you were doing gas trading and you realized actually more and more MBAs are coming to work for me, so I don't need to go do this at all. And in the end I guess you didn't. How important is particularly graduate work for how do you advise young people thinking about that?
• 1:08
  John Arnold (01:02:36): Yeah, I think the huge question mark is ai and I really have no idea how this is going to play out in the future of work, in the future of education. So let me answer this question ignoring AI for a minute because otherwise I have nothing to say. But I do think there was this false narrative that we had a society from 2000 to maybe 2015 roughly that and the future of work required a four year degree that that was the path and the only path to economic mobility, and I think that's been proven wrong for a couple of reasons. One is that as we had this trend, both rising demographics of 18 to 22 year olds during the earlier part of that time and a greater percentage of Lowe's were choosing to go to a higher ed institution, you had the creation of a lot of new seats in higher ed, right? The supply met the demand, and a lot of that growth in supply was not very good supply.
• 1:09
  (01:03:56): So you had for-profit colleges that were often predatory in their practices, both in recruitment as well as not really providing in education that the market valued. So it was unlikely that people who attended Lowe's would get a degree, even if they got one, the market didn't necessarily put value on it. And then even as some of the nonprofits were having either challenges with the for-profits just on market share, they started adopting some of those similar practices and it became more and more difficult to distinguish between the practices of some nonprofits and some for-profits. And so you had students that were coming out of higher ed oftentimes without a degree with student loans and with training or an education that the market didn't value. And eventually that word kind of started to seep out. And I think that's a big driver of why we're seeing decreased interests today is that people have brothers and sisters or cousins or uncles and aunts that went through this and they hear that was a waste, and now I have this student debt and I got nothing for it. Don't do that.
• 1:10
  (01:05:27): So I think that's certainly a component. I think the second component is that we are industrializing in America if people haven't heard yet, and it requires a lot of skilled and craft labor. And so there's huge demands for people who can do those jobs, and that's being translated into those wages. And so I think the spread between and a white collar work and craft labor work, I think was growing for a time towards the white collar 20 years ago and maybe even 10 years ago. And today is shrinking and in some cases often has reversed where a skilled craft laborer can earn more than many white collar workers. And so I think people are responding to just the salary dynamics and the incentives that the market is saying what to do.
• 1:11
  Jason Bordoff (01:06:29): So I was right. This should be a 10 part miniseries because there are so many topics, any one of which we could spend several hours talking about. And we've already a couple minutes over the time you very generously offered to share with us today. But I want to just say thank you, not just for joining us today, but again, we've been so fortunate here at the center not only to receive philanthropic support from the Arnold Foundation, but really much more. You have been a really deeply valued friend advisor to me, part of the advisory board here, and have always been so generous with your time to help me think through how to build a leading energy research institute, make sure it has the impact that it needs to have and should have. And I think I've been most appreciative that, I think real friends also tell you when you have spinach in your teeth or when you make a mistake or when you get something wrong or when you're missing something. And it's not always fun to hear, but you have not been afraid to do that either, and it's been more valuable than I think. So thank you very much for that, and thanks for being with us today, John.
• 1:12
  John Arnold (01:07:37): Thank you. And again, just huge mutual respect for you and everybody at the center. I think there's a huge alignment and interest in how we see the world and how we're trying to tackle problems. And so I've always appreciated all my time at the center. Thank you.
• 1:13
  Jason Bordoff (01:07:58): Thank you again, John Arnold, and thanks to all of you for listening to this week's episode of Columbia Energy Exchange. The show is brought to you by the Center on Global Energy Policy at Columbia University. The show is hosted by me, Jason Bordoff and by Bill Loveless. Mary Catherine O'Connor, Caroline Pitman, and Kyu Lee produced the show, Gregory Vilfranc engineered the show. For more information about the podcast or the Center on Global Energy Policy, please visit us online at energypolicy.columbia.edu or follow us on social media @ColumbiaUEnergy. And please, if you feel inclined, give us a rating on Apple, Spotify, or wherever you get your podcasts. It really helps us out. Thanks again for listening. We'll see you next week.