How Can A Canadian Transit Suppose Tank Be So Deeply Incompetent?

Join day by day information updates from CleanTechnica on e-mail. Or observe us on Google Information!

Lately, I had the chance to take a seat down with Michael Raynor, previously a managing director of sustainability and thought management for Deloitte and writer of a number of books on innovation and technique. We talked about not solely an modern method to addressing Scope 3 emissions that Raynor has developed, but in addition an odd case of a nasty examine of bus transit that’s creating issues in Canada, one which advisable a whole lot of hydrogen buses together with battery-electric ones. Beneath is the hyperlink to the second half of the dialogue and a calmly edited transcript. The primary half is obtainable right here.

Michael Barnard (MB): Welcome again to Redefining Vitality – Tech, sponsored by TFIE Technique. I’m your host Michael Barnard. My visitor right this moment is somebody whose work has formed my pondering and method to innovation for twenty years, Michael Raynor. He’s the co writer with the late Clayton Christensen of The Innovator’s Answer. Till just lately he was a managing director engaged on sustainability and thought management for Deloitte. Now he has a few corporations he’s invested in and based, together with S3 Markets. Returning for the second half of our dialog, which is specializing in the Canadian City Transit Analysis and Innovation Consortium’s deeply flawed state of affairs modeling for Brampton’s bus decarbonization that led Brampton to hunt to have hydrogen buses as a part of their fleet. 

They’d a $10 million distinction between the 2 eventualities, and I’ve simply recognized, simply glancing at the very first thing, the worth of hydrogen they use a possible swing of $200 million multi instances for one issue. And if that was all, then I’d say, properly, possibly we will rerun it and see what that’s. However then I checked out how lengthy drivetrains and batteries had been lasting in actual world circumstances with full warranties for eight years in Europe and the way brief a time gasoline cells had been lasting. Properly, they’d the identical alternative time of six to seven years for each of their examine. In order that’s two and a half to 3 instances distinction. So a gasoline cell bus, you’re going to switch the gasoline cell over 15 years 5 instances, not twice. 

And battery electrical buses, in the event you’ve received a 15 yr life cycle, properly guess what, you’re going to switch the battery. 

Michael Raynor (MR): As soon as, not twice. 

MB: And so not changing the batteries. CATL simply introduced they’re warrantying batteries for EVs and heavy transportation for 1,000,000 miles. Now I did the mathematics. Fundamental transit bus size of journeys yearly in North America in 70,000km whereas CUTRIC and Brampton agreed on 58,000 km, a slight variance. Don’t know the explanations for that. However assuming 70,000 kilometers, that’s about half of 1,000,000 miles over the lifespan of the bus. So CATL is delivering batteries this yr, which is able to final twice so long as a bus. And so that you form of sit there and go okay, why are gasoline cells, from information, empirical information documented by the EU of their standing reviews lasting three years being changed on the identical fee as these different issues. So it’s $100 million swing in favor of battery electrical simply by extra reasonable length for battery packs. 

There’s a second one although. Additionally they don’t appear to suppose that batteries are getting cheaper. 

MR: So hydrogen is. However batteries aren’t. 

MB: Yeah. Gasoline cells are going to get higher and batteries aren’t. The previous 15 years has confirmed that gasoline cells are remaining the identical and batteries are getting loads cheaper. You recognize, there’s your complete Wright’s Regulation factor. You’ve undoubtedly frolicked taking a look at manufacturing and Wright’s regulation and manufacturing the expertise curve. Why don’t you lean into this one and provides your rationalization of it? As a result of I find yourself saying this an excessive amount of. 

MR: The applied sciences that go into making hydrogen are properly understood. They’ve been manufactured at huge quantity for lengthy durations of time. And one of many issues that I’ve noticed working within the local weather house for that matter, is that folks speak about economies of scale as if it was some magic wand, as if it was created by Harry Potter. That merely making extra of something goes to outcome within the prices getting dramatically decrease for causes that don’t have to, which are completely inscrutable and needn’t be defined. And that’s unlucky. Proper. As a result of I believe to start with, as you level out, as the info would present, price of gasoline cells and the price of hydrogen don’t go down even though they’ve been manufactured at scale for lengthy durations of time. 

Batteries are getting cheaper on a Wright’s regulation curve. So each doubling of manufacturing price falls by a predictable proportion for causes that we perceive. The underlying applied sciences are such that we’re a lot the identical. The one that everyone is all people, that many individuals are intuitively aware of is how microprocessors received smaller and cheaper, et cetera. In reality, they received cheaper as a result of they received smaller. And the identical kinds of issues are occurring with the underlying chemistry and design of batteries as properly. Proper. So they’re getting cheaper empirically for causes we perceive. And it’s since you’ve received these two issues to lean on that you just’re justified in saying {that a} affordable particular person can anticipate this to proceed for some significant time frame. In the event you’ve solely received one or the opposite, that’s a wobbly stool. Proper. 

Since you’re like, properly, it’s been doing it for this lengthy. Properly then you definitely’re in mutual fund territory. Previous returns are usually not indicative of future efficiency. And in the event you’ve solely received a proof, properly, then it’s a theoretical prediction. However whenever you’ve received each, it’s carried out this for a cause we perceive. Properly, now you’ve received a principle of the case you can depend on. And I might assert that we’ve received each dimensions for each applied sciences. It’s simply they lead you to utterly completely different conclusions. Proper. Hydrogen is empirically not getting higher for causes we perceive, and batteries are empirically getting significantly better for causes we perceive. And so we will extrapolate these curves. Downside is considered one of them is a horizontal line and the opposite one’s an exponential price discount. And that appears to have been ignored. So does that scratch the itch? 

MB: Yeah, it completely does. We’re constructing billions of batteries similar to we’re constructing billions of photo voltaic panels. And each time we double manufacturing volumes, the worth goes down by 20% to 27% per unit. Then we assemble them into packs, and the packs are taking place within the encompass, however all of the content material, the massive contents, the massive value driver, the batteries, goes down. I really did knowledgeable engagement this yr with a European funding fund that offers with inexperienced infrastructure to check this. And we’re solely this yr form of on the tipping level for a diminishing return on battery price as a proportion of the entire battery pack price. 

We’re now attending to the purpose the place the battery pack price is the slight majority of the price of the entire battery pack, not the batteries, however the encompass, thermal administration, the shell, the ability administration, these sorts of issues which aren’t topic to the identical diploma of transformation. We’re going to see a diminishment in advantages. However again to, you already know, CUTRIC, their assumption was, you already know, lots of of hundreds of {dollars} to switch a battery pack. The primary battery plaque replacements can be within the 2030s, and there’d be two of them, and so they had been each priced at in all probability 2022 charges for battery pack alternative, as if there was no discount in these prices. 

MR: Proper. In order that they’ve carried out it twice as usually at 50% above the price, which signifies that principally 4 instances the price has been loaded onto batteries. 

MB: And to be clear, nonetheless they needed to recreation the system to get hydrogen in there in any respect, as a result of the most costly state of affairs was hydrogen solely, and battery solely was simply $10 million costlier. So this swing, that’s one other hundred million greenback swing in favor of batteries. Ten instances that, $10 million. And I wasn’t carried out. Then there have been the hydrogen gasoline cell replacements. Properly, changing them not each six to seven years, however each three years. Properly then that provides one other 25 million bucks to your alternative prices. Proper. It’s similar to you’re doing it extra. In order that’s one other factor which additionally exceeded the $10 million variance they clearly stated made it the most affordable various. 

Now I stated they didn’t really value hydrogen. Properly, that included not costing Canada’s carbon value on carbon emissions. Grey hydrogen is constructed from pure fuel. Each kilogram of hydrogen is roughly equal in vitality to a gallon of gasoline. It comes with 10-12 kg of carbon dioxide or equivalents. And it seems it’s much more. 

Now, you already know, they didn’t even value this one. If we simply assert the 408 hydrogen buses and their consumption, it turns into one other $25 million in prices on prime of this as soon as once more blowing this $10 million. 

MR: Properly, yeah, I imply I’ll allow myself to leap in there too. Now, you’ll undergo the wages of my undergraduate diploma. Which is that, which is that once more, if the purpose of this had been to attenuate the price of the transformation of the fleet, don’t rework the fleet, simply run frickin diesel buses and pay the carbon tax and also you’ll decrease your price. Job carried out. That’s tremendous simple. That’ll take 12 seconds and we simply did it. 

Proper. In the event you’re inflicting all of this ache and struggling on it, however that gained’t serve the hydrogen foyer as a result of in the event you hold burning diesel, you’re not burning hydrogen. Proper. So in the event you’re going to say, look, let’s take an financial lens to this and purely an financial lens, properly then simply keep on with diesel and shut up about it. In the event you’re going to take a carbon lens to this, properly then as we simply mentioned a minute in the past, 100% battery is the one factor that makes any sense. 

In the event you, in the event you have a look at the minimization of the carbon that you just’re left with on the finish of the transformation after which henceforth in perpetuity. So inform me once more how hydrogen snuck in there by some means as a result of it doesn’t make sense economically and it doesn’t make sense ecologically. So now I’m. Now I’m confused. 

MB: Let me simply shut off on that one additional factor I discovered. These numbers are benchmarked with international prices for these items. I’ve seen the reviews and so they’re low balling hydrogen refueling services on the stations. They’re asserting liquid hydrogen services for storage of hydrogen. For individuals who haven’t listened to me rant about liquid hydrogen, I’ll permit myself 10 seconds. It’s 20 levels above absolute zero, in all probability it’s 290 levels Celsius under snug temperature for you. 

MR: I’m from Thompson [a northern city in Manitoba]. Besides. 

MB: Even so. Okay, okay. So 270 levels. I’m from North Bay and Moosonee [northern towns in Ontario]. So the liquid hydrogen is there to try to obtain density of hydrogen storage. It’s a really costly technique to do it. It takes a 3rd of the vitality within the hydrogen to show it right into a liquid to get some advantages of decrease quantity. They usually’re going to have liquefication services and seize services and boil off services on these crops. Now, for the variety of buses they’re taking a look at, they’ve solely priced for the refueling services, not for liquefication services. So far as I can inform, I’m not seeing any proof. 

Right here’s an information level for you. The federal government of Quebec, one other province neighboring the place Michael is sitting. I used to be there for weeks this summer time, great spot. 

They really did a hydrogen fleet trial which simply ended final yr. In 2019, they leased 46 vehicles, 45 Toyota Mirais and a Hyundai for governmental workers. They usually dispersed them throughout ministries in Quebec Metropolis. They paid $5.2 million Canadian for a single pump hydrogen refueling station that had a small hydrogen compressed tank beside it. Not liquefication, but it surely additionally had an electrolysis facility there. In order that they’re really making hydrogen on the facility with inexperienced electrical energy from the grid. And it’s Quebec so that is really inexperienced electrical energy. It was low carbon, one of many few fleet issues the place it’s virtuous. However that $5.2 million is for a single automobile to have the ability to refill 5 kg at a time and repair six vehicles an hour if it’s fortunate. It doesn’t have any liquefication services. 

408 buses between two services, 300 in a single and 108 within the different, so want one thing a bit extra strong than that. And guess what? Every a type of services goes to be way more strong than the $5 million facility in Quebec, and so they had prices of $3 million for every facility. The numbers simply don’t add up from international benchmarks on hydrogen refueling and liquefication services. And so I simply stated that’s in all probability one other $10 million by itself. But once more, blowing that $10 million variance out. And in order that’s form of my factor. Mine got here as much as about $360 million primarily based upon international benchmarking towards towards reasonable actual world costs, not no matter CUTRIC has of their information. I figured that was sufficient. 

And I shared that with you, Michael, as a result of, you already know, I stated, and by the best way, there’s that materiality factor. After which your mind, which is formed in another way than mine, noticed one thing very fascinating. So now could be the time to speak about your 2007 guide. 

MR: Oh, sure, in order that’s known as The Technique Paradox, which was, as they are saying within the enterprise, the commerce model of my doctoral thesis. So it was an exploration of the implications of uncertainty on technique. The bumper sticker in the usual technique house is that methods about commitments within the pursuits of being completely different out of your competitors, however sadly, dedication essentially implies sure assumptions in regards to the future. The long run tends to be considerably unpredictable. So how do you sq. that? How do you make daring commitments within the section of uncertainty with out simply turning technique into a visit to Vegas? There’s a bunch of corporations, all of them make completely different bets and we see who wins. And that’s not a perform of who was the most effective, who had the most effective strategery. That simply turns into a perform of who picked 17 purple. 

I don’t play a lot roulette, so possibly 17 is just not purple, however anyway, you already know what I imply? And what that led me to was a specific tackle state of affairs primarily based planning. And that’s the place, after I checked out these three eventualities, to your level, these are all level estimates of what the following 20 years are going to seem like, which is essentially topic to some significant uncertainty. However whenever you name it unsure, that doesn’t imply you must throw your fingers up and say, I do not know what the longer term goes to be. Again to our earlier dialog about below what circumstances you may make credible claims in regards to the vary of future outcomes. In the event you had been to embed that into the price projections that they made, you might provide you with a spread of outcomes for every of their three eventualities. 

So that you, and actually, you don’t have to do them independently. You’ve received batteries, you’ve received gasoline cells, and also you make projections in regards to the prices related to every and the way these are anticipated to vary over time. And all. And every of them may have their error bars. And so that you identified causes to recommend that, hey, wait a minute, present prices are a lot increased than your projected prices. Previous efficiency and what we learn about what drives previous efficiency means that the outcomes you’re betting on are literally fairly unlikely. Proper? So your, the purpose estimate that you just’ve utilized in your projection is definitely form of within the ninety fifth percentile of all outcomes. And that’s fairly aggressive. And worse, the projection you’ve used for batteries is within the fifth percentile of all outcomes for batteries. 

And so because of this, you’re arguably underestimating the price of hydrogen and overestimating the price of batteries. And that’s an issue. So it’s a nasty concept to make these choices primarily based in your level estimates. It’s an excellent worse concept to make these choices primarily based on extremely biased level estimates.

MB: And in order that was form of remark #1 for each of us. It’s like, hey, $10 million bucks on $9 billion is a nothing burger. And the diploma of variance can be increased. That was my remark and your whole thesis and the guide that resulted from it says the variance on the hydrogen is loads increased. 

MR: And skewed in another way, proper? The purpose estimates that they use are drawn from a special level within the distribution. In the event you’re going to make use of the modal final result of that distribution, truthful sufficient. However even into that, you’ll be able to say one thing in regards to the distribution of these outcomes. These are properly developed instruments. It’s not prefer it’s some massive secret. You’ll be able to simply do a simple Monte Carlo evaluation and say, okay, what proportion of the time does my blended fleet come out with a specific price profile? That’s simple to do, proper? So that you construct the distribution for batteries, you construct the distribution for gasoline cells, after which you already know, put them collectively in no matter combination you suppose goes to make sense.

How one can even run a collection of simulations with an optimization perform and say, nice, right here’s the very best final result. However that, after all, ignores one other key dimension of the issue. And I’ll guess that that is the place we go on subsequent, which is the implicit price of the complexity. 

MB: Yeah. Why don’t I speak to the primary half of the complexity and then you definitely speak to the massive downside. I’m going to speak about bus complexity. 

MR: Certain. 

MB: Simply briefly and simply introduce it. Diesel buses are well-known. They’re properly understood. They’ve an engine, they’ve a transmission, they’ve a drivetrain, they’ve brakes, they’ve a shell, they’ve seats, they’ve alarms and horns and stuff. And a battery electrical bus removes a whole lot of complexity. It has a strong state battery. The battery simply sits there. Nothing strikes. The battery, it’s received some energy administration stuff and it’s strong state. Nothing strikes there. No transferring elements within the energy administration. Then it’s received the electrical motor and there’s one transferring half within the electrical motor. After which there’s all the remainder of the stuff. There’s brakes and all the remainder of the stuff {that a} diesel has. We’ve gotten rid of a whole lot of complexity. 

That’s very nice, which is why all people’s asserting that battery electrical automobiles are decrease upkeep or ought to theoretically be decrease upkeep than inside combustion engines. And we’re discovering they’re California stuff once more, like 60 to 70% of the upkeep prices of diesel buses as a result of they’re so easy and the brakes last more and stuff. 

So then a hydrogen gasoline cell bus. One of many little recognized details a few hydrogen gasoline cell is that it’s not a black field. You’re placing air and hydrogen in, you’re getting water out. And the within of a gasoline cell is like the within of a battery. It wants pure stuff at sure climatic norms. In any other case stuff goes unsuitable. 

We have to take any air that is available in out of metropolis streets, driving behind cement vehicles with their diesel engines spewing fumes and we have to purify it to hospital grade air high quality and we have to humidify it to precisely the suitable humidity that gasoline cells like and the temperature vary that gasoline cells like. In order that’s sensors and pumps and filters and humidifiers and dehumidifiers and thermal management. All that stuff doesn’t exist in a battery electrical bus. 

After which on the hydrogen, we’ve received the tanks which should be licensed for the equal to 3 to seven kilometers underwater. That’s how a lot stress is in these issues. Then when the fuel comes out, it adjustments temperature radically. So we received to have thermal administration for that. 

It’s received stress administration as a result of the tanks cut back in stress over time. We even have to have the ability to get pumps to pump the fuel into the gasoline cell on the stress it likes, which is about 3 atmospheres, like being 30 meters below the water as a result of that’s what the stress it likes. And it’s received to be the suitable temperature and it’s received to be pure. 

Then we’ve received the water popping out, which, as a result of whenever you run a gasoline cell with hydrogen, it turns water comes out, which is the benefit. No emissions, simply water. Properly, water freezes within the wintertime. Whistler’s buses, for instance, stored breaking as a result of the water stored freezing inside them as a result of water that got here out of the gasoline cells wasn’t managed thermally and pumped out earlier than it froze. So we have now to have thermal administration for that. 

And all of these issues should be assembled across the gasoline cell. The gasoline cell has not one enter and output of energy and a few sensors. It has fuel and different sensors and energy and a complete bunch of different sensors that should be assembled for. Want water out, you want air in, want hydrogen in all these sorts of issues. So the complexity of assemblage is increased. That’s all on prime of what’s inside a battery electrical bus, as a result of a hydrogen bus nonetheless has a battery energy administration and an electrical motor. You’re including all this complexity, and it’s finicky complexity. You’re driving this throughout potholes and also you’ve received 700 atmospheres. You must protect the steadiness of. 

You’ve received all this HVAC stuff you must protect the standard of. It’s a lot higher local weather management than the passengers get.. Think about simply doing this for all of the passengers inside. I simply really feel so good after I get out of there as a result of my lungs clear up as a result of I’m not respiratory metropolis air. You recognize, that’s what the gasoline cell will get, not the passengers. 

So that is all complexity. We see that within the reliability components for gasoline cell automobiles versus battery electrical automobiles. That’s already been lined. However then you definitely noticed the systemic factor, tons of complexity. 

MR: I believe that’s a superb setup due to the complexity of the know-how you’re describing. I’ll assert that it’s considerably charitable to say that the price of all of that complexity is captured within the embedded prices of the units themselves. While you say hydrogen buses price extra, they’ve barely increased upkeep prices, we’re going to say, you already know, we’ll grant the belief that all the complexity you’ve described has been accounted for in the price related to that bus. 

However the complexity that occurred to me comes from the truth that you’re working a number of applied sciences concurrently. And so now you’ve received a complete new ballgame across the organizational complexity required to deal with that technological complexity. And also you’re working three completely different sorts of buses. Meaning you’ve received three and utterly completely different applied sciences in each. 

So now you’ve received utterly completely different upkeep personnel who should have completely separate and distinct expertise and experience and expertise and all that go, all intuitions and all that goes with it, proper? You’ll be able to’t simply choose up the instruction handbook and you already know, this isn’t your, your, your flyboard bookcase from Ikea, proper? The place you choose up the pictogram and put the factor collectively. This stuff are robust to determine and it takes actual experience and ability to keep up them. And so now what’s that going to seem like? So take into consideration the specifics. You’re going to have a upkeep depot. Are you going to have a number of depots for each? Are you going to place all three applied sciences in the identical depot and the necessity for the completely different elements. 

And now you’ve received these actually finicky or high quality clear rooms in your gasoline cells. I don’t suppose you’re going to place them subsequent to your diesel buses. Anyone who’s ever been in a superb quaint diesel bus storage, no, that doesn’t sound like a good suggestion. Are you going to have the suitable individuals there on the proper time to repair the bus that’s damaged down in a specific means? On and on we go, proper? And in order that form of complexity, it’s a complexity and expense born of diversification. So take into consideration any firm that’s received three or 4 or 5 completely different traces of enterprise that compete and function in fully completely different industries in several markets. There’s a really well-known diversification low cost that goes together with that form of complexity and overhead. 

And that’s what they’re inflicting on themselves by working this very gradual rollout of two completely different applied sciences and a really gradual wind down of the diesel buses. I didn’t see something in there that acknowledged a price arising from that. And what I might say with a reasonably excessive diploma of confidence is that these prices are removed from trivial. 

MB: There are two factors there. The primary one was their transformation state of affairs. Their timeline didn’t respect the discontinuity. That is your remark. The discontinuity that whenever you get right down to a few hundred diesel buses, the price per bus for upkeep shoots up so radically that you just wish to get them off the streets as quick as potential. 

MR: I believe that’s proper. That’s good quaint economies of scale that most individuals perceive fairly intuitively. If you must keep a whole diesel upkeep store for 3 buses, these issues don’t scale simply. You construct it to handle the 600 diesel buses that you just’ve received, and whenever you dial that again down, you’ve solely received 50 left. Okay, nice. The labor price could also be considerably variable, however all of that mounted infrastructure is just not nothing. In some unspecified time in the future you’re like, that is ridiculous. Time to get out of the diesel enterprise. 

MB: And CUTRIC, I’ll remind all people, is within the enterprise of fleet transformation. It is a easy remark that ought to have been caught someday prior to now 9 years. They’re interested by how fleets would transition. This isn’t rocket science. 

MR: I say various things with completely different levels of ferocity primarily based on my stage of certainty. Which is that it appears to me that the, the advanced, the complexity born of diversification is one thing to take very critically. All the pieces I’ve realized would recommend that we have to have a look at it. How expensive is it? I don’t know, however we would be capable of provide you with some affordable estimates. And what I might recommend is that CUTRIC’s been interested by fleet transformations for 9 years, however no one’s ever carried out one. So principally it’s information free. What does it price to switch? I imply, in Canada, like, what does it price to do that? They might, they might throw their fingers up and say, we don’t know, time to inform. 

However again to the place you began the dialog. Proper. What in regards to the reference? You recognize, the most effective reference case examples. Different individuals have carried out it. And so there’s one thing to study from them, one would hope. 

MB: Properly, I’ll return to 2019. Certainly one of my bizarre experiences is that I used to be within the preliminary phases of consulting earlier than COVID hit with Translink in British Columbia for his or her battery electrical truck and battery electrical bus transition. You recognize, I’d run into the one that was accountable for it at a convention and I began speaking. And so we had been having discussions round this and I requested him a easy query. That is the particular person accountable for changing this. He’d had this position for a yr or so he’s properly into planning. I stated, so when are you going to China to get the teachings realized from the main practices of enormous fleet transformation from, for instance, Shenzhen, the place they now have 16,000 electrical buses on their roads? He stated it hadn’t occurred to him. And this isn’t a slight on this particular person. 

Then I steered the following factor. New Flyer, the first vendor for transit buses in North America, had a peak variety of delivered buses in any yr of 6,500. You will have 2,100 buses in a small geography, there are 72,000 in the US. New Flyer clearly can’t scale to an unfamiliar know-how within the timeframe you’ve received. So clearly the technique there may be to three way partnership with Yutong or BYD, two main bus producers in China, or simply get them to ascertain a manufacturing facility. Oh properly, he stated, Canadian prospects wouldn’t settle for Chinese language high quality of buses, indicating that he’d by no means been to China’s present cities and so he had very completely different concepts about Chinese language shoppers would or wouldn’t need. 

Anyone who’s been to Beijing or Shanghai or one of many different fashionable Chinese language cities proper now, together with Shenzhen, the place they’ve 16,000 electrical buses. Chinese language shoppers, for anyone who’s listening, are extremely choosy. They’ve an incredible alternative of low-cost stuff that’s insanely top quality and numerous. That’s why Ford’s CEO just lately got here again from China and stated that is an existential risk. They’re doing stuff we will’t for decrease costs. This isn’t, as soon as once more, a slight on the person. It is a systemic problem. I stated originally, transit organizations are geographically certain and so they’re very centered on operational excellence. Good on that. However ask them to be transformational individuals and search for and outdoors of their patch is difficult. They need assistance to do this. 

MR: Properly, I imply, yeah, not that anyone wants defending from me, however that’s true of all of us. It’s a shared pathology. To your level, it’s not affordable to ask individuals working the present system to determine the best way to rework it. 

MB: However I might say the following factor. Do you suppose that ought to apply to CUTRIC, this properly funded suppose tank whose job it’s to go and discover these classes realized globally? Have they been to China? Have they been to Shenzhen? Have they documented and introduced again the teachings realized? Have they checked out any of this? I see no proof of it. 

MR: No, no, completely. I imply, they’re nominally, on the threat of placing phrases of their mouth, they’re nominally the mechanism. And your query is rhetorical. They’re nominally the mechanism to do exactly that. That’s why it exists, in order that the people who find themselves working Brampton and Mississauga Transit can hold worrying about the best way to run Brampton and Mississauga Transit whereas it will get reworked. Proper. You bought to rebuild the ship whereas at sea. That’s no trivial enterprise. 

MB: And it’s been carried out to your level. It has been carried out globally. It’s been carried out in China. The place to go to study that’s China. This complete query has been completely explored and documented. In the event you go to Chinese language cities, it’s transit. It’s not like their energy system. They’re very collegial. They’ll welcome individuals and let you know stuff. It’s a really completely different factor. It’s not like their transmission traces which aren’t on Google Maps as a result of they’re safe important infrastructure. Need to understand how they’ve reworked their transit? Simply go ask them. You recognize this can be a completely different factor. So that is but once more a spot the place I might say the info was on the market, CUTRIC didn’t get it. It is a recurring theme. This isn’t all although as a result of we’ve already talked about your observations that materiality is non-existent. 

My remark is that the variance actually favors battery electrical and it’s utterly lacking from the report. It’s not that there aren’t any error bars. There’s no point out of confidence of their estimation over 20 years and you already know, 1100 buses of three differing kinds. No point out of confidence. It’s a failing grade. I assert this, you was once an MBA professor. Would you could have given this state of affairs modeling a passing grade? 

MR: Properly, there may be such a factor as grade inflation. So possibly they could have handed. They wouldn’t have been prime of the category, that’s for certain. I might really feel that I had failed a pupil that got here up with that as their finest effort. 

MB: Certainly one of your observations was that they’ve labeled a graph unsuitable. 

MR: That’s a type of issues the place it’s a small factor, that’s a giant factor. I used to be interested by this earlier. Many individuals have been uncovered to that story about Van Halen and the, and the Brown M&Ms. Oh sure, you’ve heard that. I realized of it in Atul Gawande’s guide The Guidelines Manifesto. 

So for people who haven’t heard it, this was again within the mid-70s when it was the true Van Halen. When it was in the entire stadium rock live performance had simply form of taken off and it was extremely advanced. There was not a properly established infrastructure for organising live performance venues with all of the pyrotechnics and the lights and the explosions and all that. And so there was form of a telephone guide of directions that went to the best way to set all these things up. And in the event you did it unsuitable, individuals can get harm and even killed. And so the story is that Van Halen on, you already know, web page 274, paragraph 838, sub, paragraph 7, sub paragraph I stated a bowl of brown M and Ms within the inexperienced room. 

And so after they received to the venue, the very first thing they did was go search for the brown M and Ms. And in the event that they had been there, they’re like, seems like they learn the telephone guide, proper? So it’s a technique to make it possible for individuals have carried out what they wanted to do. 

CUTRIC has a chart within the report that’s labeled internet current worth. That’s my bowl of purple of Brown M&Ms, which is that the vertical axis on their discounted prices related to every of the eventualities is labeled internet current worth. It’s a really small factor, but it surely does probably betray a misunderstanding of what they’re really doing as a result of that’s not a internet current worth, it’s a gift worth of prices. 

A internet current worth is the place you’re on the lookout for the online, therefore the identify, between a collection of damaging money flows and a collection of constructive money flows that happen at completely different instances, proper? Within the stereotypical instance, you’ll have a collection of investments, damaging money flows for the primary few years, after which whenever you’ll begin producing income and funding tails off. You then’ll have a collection of constructive money flows sooner or later. You low cost all of them again right this moment to get a internet, the online of the constructive and damaging current as of proper now, worth of the general funding. Honest sufficient. 

What they only did is that they took all the damaging money flows, that’s to say all the bills related to every of those three eventualities, and discounted them again right this moment. In order that they weren’t netting something, they had been simply calculating the current worth of the longer term bills. Completely professional factor to do, by the best way. In reality, precisely the suitable factor to do, simply mislabeled. And the humorous half is, to me, at the very least, as a result of I do know precisely why that occurred, I’ve spent sufficient time as an Excel jockey. 

The current worth perform in Excel, the PV perform, doesn’t admit of variable income streams or price streams. To do this, you must use the NPV perform. And they also, I can see it as a result of I’ve seen those who have carried out these things for me again in my consulting days, they only, they wrote it out, they are saying, oh, I exploit the NPV perform, so it should be an NPV, but it surely’s not. And if the whole lot else within the report had been gold plated, then that’s simple to miss. However when it’s a part of a sample of what appears to be inadvertent oversights, then one can solely start to surprise, proper? As soon as your Bayesian prior is that possibly these people aren’t fairly as professional as one may like. Numerous issues I can’t do properly both, by the best way. 

So no one’s criticizing anyone personally, but it surely does recommend possibly these weren’t the suitable tradespeople for this explicit evaluation. 

MB: It’s a part of the deeply substandard work that they’ve carried out, by my skilled opinion, as somebody who spends huge quantities of time taking a look at hydrogen transportation eventualities and reviews, by yours as a state of affairs modeler and an individual who’s written a guide actually on it. But it surely got here to a different couple of insights. So one of many insights you made was why are we taking so lengthy? If we’re making an attempt to get advantages, why not implement the battery electrical buses quicker? However then you definitely stated, huh, when are they really shopping for and implementing gasoline cell buses? So what was your remark there? 

MR: Properly, they’re all pushed out to, I believe it doesn’t begin till 2034, 10 years. I imply, name me a liar for a yr or two by some means. It begins very late within the planning and that has a really fascinating consequence for a few causes. First, it might be a fig leaf behind which one can disguise to say that’s why the hydrogen prices are so low. Proper. We’re modeling them decrease than present prices, however belief us, it’s 10 years sooner or later, so we’ll get there. However the quantitative implication is that hydrogen buses even then are increased price. 

And they also’ve taken the upper price and put it out 10 years, which implies these increased prices get discounted again, whereas all the buses that, the battery electrical buses that you just’re deploying proper now don’t get discounted again. And so the hydrogen seems artificially cheaper in the event that they had been the identical price, if hydrogen buses and battery buses had been the identical price, that discounting wouldn’t matter as a result of it could simply be one for one. Proper? The current worth of the price of the entire venture can be the identical regardless in the event that they price the identical. You’re shuffling round one unit right here versus there. Doesn’t matter. However as a result of hydrogen buses are costlier, that’s not what occurs. 

If a hydrogen bus prices 1.3 instances as a lot as a battery bus, all in capital, opex, the entire bit, which isn’t loopy. In reality, that’s beneficiant given what you’ve described. That has a cloth affect, proper? As a result of now what’s occurring is {that a} $1 battery bus isn’t discounted, however a $1.30 hydrogen bus is. And unexpectedly it has an actual materials affect. In the event you had been. In the event you take these differential prices and simply say, nice, I’m going to provide the future prices of the hydrogen buses. I’m going to provide it to you proper now. You’ll be able to have hydrogen buses for what you suppose they’re going to price in 2034, however in change, I’m going to make you deploy them now. And after I try this and rerun the low cost, the entire state of affairs blows up, proper? 

So the seemingly comparable prices transform an artifact of the timing and the deployment and nothing else. When the viability of your whole state of affairs activates that and solely that, like, let’s throw the whole lot else out the door now, unexpectedly, the whole lot determines. All the pieces activates the timing of the deployment. And if anyone can inform me to a certainty that what they suppose they’re going to do 10 years from now could be precisely what they do 10 years from now, I’m again to my error bar dialog. 

MB: You had an estimate, and I’m working with the estimate whether or not you’re snug with it or not. However Mainly it’s a 3 and a half p.c discounting fee they use. Individuals can argue up or down. The EU’s steering is 4%. The US steering is 2 and a half p.c. 

MR: Massive deal. 

MB: 3 and a half p.c. 

MR: 3 and a half. 3 and a half of like, not a loopy quantity. 

MB: Nope, it’s very affordable. However that’s yearly and it’s accumulating and turns into about 40% in 10 years, which signifies that stuff from 10 years on is discounted by at the very least 40%. Now, I did math towards the total hydrogen gasoline cell bus state of affairs and I took the 408 buses within the blended state of affairs and I took a bit of that and I multiplied by 0.4 to seek out out what proportion can be, you already know, what grossed it up. And it’s $1.1 billion. 

MR: It’s now 10% of your complete venture that activates your timing assumption. 

MB: I simply have a look at that. And my stuff provides to that, by the best way, as a result of they’re low quantity prices after which they’re pushing them out. If we add my $360 million to their hydrogen gasoline cell prices after which deliver them, don’t low cost them by 40%, then we find yourself with an excellent increased quantity. And the entire variance that they primarily based the blended state of affairs on was $10 million. 

MR: Yeah. And whenever you add all of it collectively, we received one thing shut to love a billion 5. 

MB: I have a look at that and I’d say I personally, if I used to be a transit company and checked out our findings, I might be critically questioning CUTRIC and whether or not they had been biased in the direction of hydrogen. I might be getting third celebration others to redo any numbers that CUTRIC had supplied me as a result of they’re not credible. And if I used to be CUTRIC, I’d be taking a look at my governance very critically and questioning how we’d ended up on this horrible place and getting third celebration individuals to help them to enhance their modeling. As a result of if CUTRIC doesn’t enhance this, they don’t have a cause to exist. 

MR: Yep. The very last thing I’ll throw in, which is the alternative of the criticism we simply leveled, proper? Which is that they need to be discounting, they’re simply doing it inappropriately. While you have a look at the local weather advantages of the transition, which they don’t think about in any respect there, you really can’t low cost the longer term affect of the adjustments. So whenever you roll this out slowly for no matter you already know, there are causes. I believe it was Feynman who stated this, or possibly not. Time is nature’s means of stopping the whole lot from occurring without delay. Proper? So you’ll be able to’t, you’ll be able to’t simply wave your wand and say nice, battery buses, poof. It takes some time. So sure, there needs to be a transition, as we’ve mentioned. 

However there may be actual profit in accelerating the deployment as a result of it reduces carbon sooner. Future harms are simply as dangerous as current harms, in contrast to future prices, which prices lower than present prices as a result of discounting. Future harms don’t low cost as a result of they don’t hurt simply you. Local weather change is all in regards to the externalities. And basic normal finance principle says you’ll be able to solely low cost advantages or, you already know, advantages or prices in the event you’re the one one benefiting or being harmed. As quickly as you violate that assumption, and the explanation for that’s that if any individual else is harmed, how are you aware they use your low cost fee. You don’t know what their low cost fee is. Perhaps they’ve a damaging low cost fee, proper? 

Ten years from now, people who find themselves harmed by these emissions are, they’re getting harmed then, not now. So chances are you’ll suppose that hurt 10 years from now could be value some fraction of what it could be value 10 years from now as a result of it’s you. However for somebody who will get harmed, then it’s value 100% of the hurt to them then, proper? And also you don’t get to resolve for them what that’s really value. There are each good monetary causes and good ethical causes to have a look at these future emissions and say they’re simply as damaging then as they’d be in the event that they had been occurring now. And that provides you an excellent cause to take that into consideration when deciding how rapidly to have an effect on the transition. 

So there’s good financial causes to do it quick. There’s good ethical and ecological causes to do it quick. There are good financial causes to make it easy. There are good organizational causes to make it easy and simply. And on each a type of dimensions, it’s simply, you get a giant purple X all the best way down the checklist, which is actually disheartening. 

MB: To that time of discounting, I’ll hold you for an additional two minutes simply to precise this thought. The European Union with their emissions buying and selling system and their carbon pricing and the core carbon border adjustment mechanism, get this future discounting factor. They are saying, we have now a carbon value, it’s going to go up. And we have now, for budgetary steering, for initiatives, for lifecycle carbon assessments and for enterprise instances, as a result of the carbon has a value to your small business case, right here’s your schedule, yr by yr by way of 2050 for the carbon value to pay, proper? What they did although, is that they stated, okay, in 2030 it’s going to be round €200. In 2040 it’s going to be round €300 and 2050 it’s going to be slightly extra. 

However then they stated at our 4% discounting fee, we’re going to gross these up in accordance with the discounting fee into the longer term. And you employ the gross up quantity in your small business instances in order that whenever you deliver again 2040, €300 per ton to 2023 or 2024, it’s nonetheless €300 a ton.

MR: I used to be not conscious of that. That’s impressively refined and coherent. That’s superb. Good for them. 

MB: And they’re placing a carbon value on the planet with the carbon border adjustment mechanism and so they’re taking a look at getting scope 3 emissions into the CBAM. 

Let’s internet this out. CUTRIC did a extremely dangerous state of affairs report for Brampton and Brampton’s transit common supervisor has accepted their suggestions and made that assertion to the town. So now they’re looking for $9 billion to spend on this, which is definitely $10.5 billion to go down a nasty path that emits much more carbon and supplies worse transit service for the residents of Brampton. You recognize, it’s not possible to know how a company like CUTRIC has arrived at this place. 

To be clear, I don’t anticipate transit managers to have written a guide on state of affairs modeling and variance, however they need to have people who find themselves doing due diligence on the proposals they obtain. So I think there’s a top quality management concern that the town of Brampton may wish to have a look at slightly bit.

Let’s depart this on a special observe. On the finish of these items I at all times depart an open ended alternative so that you can say no matter you’d like. So something we’ve talked about, something we’ve missed, any ideas for different people who find themselves, you already know, late to the celebration, you already know, I neglect the time period you employ, however arriving at sustainability later of their careers, One thing like that. 

MR: Sure, I did. Longtime listener, first time caller. I watched too many episodes of Frasier going by way of the doctoral program. I gained’t generalize from my expertise, I’ll simply share it, and if that’s useful to anyone, then that’s a contented coincidence. I believe I discussed in passing, I’ve come to the view that we’re all form of on our personal journey in the case of interested by the local weather disaster and what we wish to try to do to contain ourselves. As they used to say in Chaplin highschool, in the event you’re not a part of the answer, you’re a part of the issue. A great bumper sticker and we should always all concentrate on that one. 

And I assume I might say that it’s, it may possibly actually appear overwhelming. I’m ceaselessly overwhelmed by it. It may be miserable. I’m ceaselessly depressed by it. But it surely appears to me there’s form of two selections, strive or quit. And for now, at the very least, I select to strive. And my hope is that for anyone who’s on their very own journey and interested by the diploma to which it’s value doing one thing, I assume I might I’ve come to the conclusion that I’ll remorse not having tried way more deeply than I’ll remorse having failed. In order that’s why I’ve received my lance tilted at these explicit windmills. 

MB: And on that observe, Michael, I’m Michael Barnard and this has been Redefining Vitality – Tech. My visitor right this moment has been Michael Raynor, former managing director engaged on sustainability and thought management with Deloitte, now co founder and investor in S3 Markets and Canary Medical, writer of many books it is best to learn, at the very least considered one of which has been guiding my observations of the world of innovation and know-how for 20 years. And the windmill he’s tilting at right this moment are turning scope 3 emissions for actually prosperous white collar corporations into avoidance of carbon by way of S3 markets and the town of Mississauga the place he lives, the place they’re doing one thing actually silly with hydrogen buses. Michael, it’s been an absolute pleasure. Thanks a lot. 

MR: My pleasure. Take care.