It’s that time of year to count our blessings and for the clean power industry, there are many. But as the Bible tells us, “For unto whomsoever much is given, of him shall much be required; and to whom men have committed much, of him they will ask the more.” The Inflation Reduction Act (IRA) is giving much to the clean energy industry and much will be required of us. I am left daunted by the sheer magnitude of the task at hand. We as energy companies are charged with not just building successful companies, but also decarbonizing the entire country while being better stewards of the communities in which we work and creating high paying and lasting American jobs.
America’s historic climate legislation cleared a big hurdle when our worst fears about the midterm elections were not realized. Opponents of the IRA will not have the leverage in Congress to significantly undermine this new law. With long term climate policies now on a firmer footing, this is an important moment for the clean power sector to come to terms with the job at hand. There are many details to parse in the IRA and parse it we have.
Right now, companies, including my own, are neck deep reworking our business plans. But, those who are putting these new policies into their financial models and are fixated on their swelling bottom lines are missing the point. It is our responsibility in this new era to build projects differently and invest in ways that we haven’t in the past. That includes buying American made equipment, paying for union or prevailing wage labor, and financially supporting the communities we work in.
It’s the right thing to do but it’s also necessary for ensuring the legislation’s broader goals. Every American must have a near-term stake in this to ensure the long-term stakes are realized. As enactment begins, it’s worth stepping back from the minutiae to better understand what this bill really is.
At its core, the IRA is not a tax policy. Fundamentally it is a climate policy, but perhaps more importantly it is an industrial policy for a country that has lacked one since the collapse of the Soviet Union. I was raised in the early days of globalization where even Democrats were coming around to the primacy of free trade. Economic gains from trade and the cleansing light of capitalism, as the story went, would root out autocracy and foster global democracy.
When it came to our policies towards China, in particular, this approach simply did not work primarily due to the willingness of the Chinese government to engage in industrial policy and state support for industry on a scale never before seen in human history. The predatory, state-funded capitalism practiced by the Chinese government targeted large segments of the global manufacturing base and used highly subsidized exports to crush domestic industries around the globe.
The IRA is a response to this reality.
If we’re the biggest consumer market then we should make a much larger portion of what we buy. The IRA aggressively provides financial support to our industries and protects our markets to insulate them from the practices of rivals, finally allowing them to reach the scale where they can overcome the competition. All of this is incredible news for US workers, consumers and taxpayers.
Overall, our industry has finally been given the government backing that many other industries from energy to automobiles have benefited from in the past. Now, we must do what they have done and become a key pillar of prosperity for a broad coalition of American workers. If we are to solve the climate crisis and build enduring political support for our industry then all Americans must benefit from the energy transition. The IRA is also a clear reiteration that US energy policy is national security policy. As the world diversifies its energy mix to cleaner sources we will not be subject to the whims of autocrats. The IRA will make the United States the unrivaled low cost producer of green fuels globally. The robust green hydrogen policy support in the IRA is a very intentional move by the US government to take the same leadership role we are establishing in global LNG in the emerging global trade of low carbon fuels such as green hydrogen, ammonia, methanol and other derivatives. These may be much smaller markets for a long time to come, but the foresight of those who wrote the IRA will allow the US to never again find itself in the position it did many times prior to the shale revolution. Green energy will soon be stored and moved at scale. This may be the single largest impact of the IRA and will fundamentally alter the course of history.
Finally, the IRA is also the most impactful piece of climate legislation ever enacted anywhere. It is up to the industry now to deliver on the promises we have been making for so many years. It will not be easy and it will involve choices based on our shared values and the inclusion of all Americans as much as the profitability of our businesses.
Indeed, much has been given and much will be required.
It’s been a tough year for clean energy but adversity favors the strong and we at Intersect Power have never been stronger. Since we closed on $130M of equity at the end of 2020 we have delivered on nearly every milestone of an incredibly ambitious plan to go from a well respected but small developer to one of the largest owners of solar and storage in North America. The business plan underlying that financing had us tripling our headcount while contracting, financing and building over 2.2GWp of solar and 1.4GWh of battery storage in the space of 30 months. But the ambition didn’t stop there. The plan also had us developing a large pipeline of late stage renewable, storage and green hydrogen assets that could begin to come online from 2024 to 2028.
Today we have achieved almost all of the necessary pieces to realize this vision. Our near term portfolio is under construction and nearing operations. We have executed on innovative short term offtake structures and repeatedly proven that we can finance projects with this revenue profile. Our pipeline of solar and storage assets puts us in position to triple the size of the operating portfolio to over 7.5GWp and 5GWh between 2023 and 2028. Finally, our pipeline of green hydrogen projects positions us to become one of the first and largest clean hydrogen suppliers in North America, vertically integrated from sun and wind through to liquid and gaseous fuels. If you want to see that it is possible to rapidly scale a business built out of steel, and not lines of code, look no further than Intersect Power.
Today we are taking the next step in the rapid growth of our business by bringing on a new partner who shares our vision and can provide the resources to realize it. We are thrilled to announce that TPG through their Rise Climate Fund along with our two existing investors, CAI and Trilantic, will be making an investment of $750M into Intersect Power.
This is not a project financing or a development loan but a growth equity investment. It is also not an exit, as has been the trend of late, neither management nor current investors are being bought out. This is a doubling down on our team’s audacious vision of rapidly building Intersect Power to be the most scalable, most efficient and most innovative clean infrastructure company in North America.
This investment is also not a flier on a clean technology or a pipeline made of Powerpoint slides. It is rooted in one of the most successful and established development businesses in the industry and our portfolio of fully financed and fully procured assets immune to the near term disruptions and inflationary trends that are roiling our industry.
The funding will allow us to rapidly add to the smartest, funniest, kindest, most innovative and… most humble 😉 team in the business. It will allow us to execute on our pipeline, triple the company’s size and push us into green hydrogen production and other emerging clean energy products over the next five years.
With growth equity investors like TPG and their deep experience in high growth companies and public markets, it is my hope that we will see increasing opportunities for large clean infrastructure companies to participate in these markets. I believe that companies like Intersect Power can not only have a place in public markets, but a responsibility to demonstrate that clean infrastructure can indeed be a growth sector. This is particularly true in a world that is rebuilding its entire economy around low carbon alternatives. The public capital markets represent trillions of dollars of invested capital and capture the attention and imagination of billions of people. It is only with the backing of these markets that we will change the course of the climate crisis. I have never been more excited about the prospects for Intersect Power than I am today, but capital alone will not be enough. If you are an investor this won’t be the last capital that our growth will require. If you make the things needed to transform our economy – turbines, panels, batteries, electrolyzers – we are ready to build with you. If you are looking to change the world alongside a group of the most talented, most authentic and hardest working people you will ever meet, we look forward to hearing from you.
Anyone telling you there is a clear and simple strategy for saving US consumers from the volatility and uncertainty of global energy markets is selling you something, doesn’t understand economics or both. Basic economics tells us why just drilling more won’t save us from Putin. It’s not complex economics either… It’s really 101 type of stuff.
In order to insulate the US consumer from oil shocks due to geopolitical instability we’d have to:
1.) drill enough to supply the US and all its allies with all of our energy needs.
2.) We’d then also need to shut our markets entirely to all other oil and ban the export of any oil/gas to other non-allied markets.
Think about that last part for a minute. Encourage massive drilling (not even sure there’s enough total resources to supply all of the western world from US oil and gas) and then cut ourselves and the private companies which did all of that drilling off from the volatile and high prices on the global market. What are the odds of that happening?
Energy is the core of western economies. Oil and gas is a fungible commodity that, given enough transportation and storage capacity, will be transported to higher price markets until market price equilibrates. So long as it is sourced from oil and gas, and we participate in the same oil market with volatile sources, such as Russia, The Middle East, Venezuela, etc., we will be exposed to crippling economic and geopolitical weakness at the whim of disasters and madmen globally.
To be clear – this is not to say we shouldn’t do all we can to boost short term production to ensure we have capacity for our own security and to help our allies. Moreover, investment in our capacity to export oil and gas, especially LNG to Europe, would be an even better investment in the security of the US and its allies. But neither of these things will help US consumers in the near-term and we are doomed to see this cycle again, if we don’t act with the long-term in mind. Electrification and a transition to clean commodities produced from America’s abundant clean energy can significantly reduce price volatility. It is likely that much of the transportation, consumer and smaller commercial and industrial loads will be fully electrified, thus delinking most US consumers and smaller businesses from market whims.
However, it will never be as simple as many would have you believe. As I’ve written about at length, we are entering an era of clean energy products and commodities such as green hydrogen, e-fuels, desalinated water, and others – some of which are already bound to be globally traded commodities. For this limited subset of largely industrial clean commodities, prices may continue to be set globally unless we completely isolate ourselves from these markets and produce all we need. The United States’ capacity to export these new clean commodities will eventually become a means of projecting power globally and defending our allies in much the same way as LNG export can today, sustaining our ties to global energy markets. However, I believe that the major suppliers of these new clean commodities will include regions such as the US, Australia, Chile and Northern Europe which happen to be more democratic and stable regimes than the current producers of petroleum worldwide.
A dramatic move towards a renewable and electrified US economy will shrink the total share of our energy tied to global markets and redefine who the major suppliers are for that limited subset of energy products. I believe this path is a far more secure path than continued dependence on the global oil markets that have roiled our economy many times over the past 100 years. All this and we avoid a global climate cataclysm while creating millions of good paying jobs. Pretty good deal if you ask me.
The climate is warming and our society will be forced to decarbonize well beyond the power sector. That much is certain, and just a matter of time. At the same time, clean electricity is reaching unprecedented levels of affordability and availability, and not all of it can or should find its way onto the power grid. I believe that the combination of these two factors will result in exponential growth in Five Inevitable Industries that have the potential to get the planet to net zero emissions on their own, without massive new breakthroughs.
I’ve been discussing this for the past few years, but I finally got around to writing it down. What follows is a five part thesis covering one potential view of our low carbon future, an overview of the important dynamics that dictate the direction of this transition, and some discussion of who might benefit and how.
Others may have written about distinct pieces of this overarching vision, but I think Intersect has a uniquely bold and cohesive vision combined with a team that knows what it takes to build physical infrastructure at this scale. My hope is that you find this as inspiring and hopeful as I do. I hope it leaves you optimistic that there is in fact a path to solving the climate crisis with well understood technologies being deployed at a much larger scale in different areas of the economy than before. This is the vision that keeps me coming into work every day and allows me to tell my kids that there is a path forward for their generation.
PART ONE: Business Plans Are Easy When You Know The Future
I have several basic but useful questions that I’ve used to frame business decisions and strategy. One day I’ll write a really boring business book with a chapter for each, but until then you’ll have to settle for this blog, which covers what I think is the most useful one of the bunch.
This key question is, “Given the current state of the market, are there any future outcomes that are likely to occur in almost any future state?” Or, in short, “Are there any inevitabilities?”
It’s rarely possible to predict specific events or exactly when things might happen, but it’s been surprisingly easy to spot larger trends that are sure to happen over a long time horizon. It’s served me well as I’ve bet on the unavoidable rise in the value of clean energy and the unstoppable cost declines brought about by learning curves in clean technologies. These were both fairly obvious trends starting in the mid 2000’s, and today underlie the success of multi-billion dollar companies and some of the fastest growing industries on earth.
A global response to climate change is inevitable, and the resulting economic changes are fairly obvious if you look closely enough. I am not going to attempt to guess when the planet will respond, nor to speculate on how much irreversible damage will have been done by that point. I am simply pointing out that climate change doesn’t stop at 1.5 degrees. It keeps going, with ever more cataclysmic consequences such that even the most stubbornly ignorant defenders of the status quo will eventually be begging for zero carbon alternatives.
This conjecture leads to some pretty simple conclusions about our future state.
Carbon will eventually have a price.
Only multi-gigaton solutions really matter.
Value will be increasingly concentrated in the green attributes of certain products, not the products themselves.
Negative emissions technologies will be required.
Retrofitting and reuse of current infrastructure must be a large part of the solution.
Large scale adaptation is unavoidable.
There’s a lot to unpack in each of these. For now I’m focused on what we can intuit about the economy in this future state, because defining a business strategy is far easier when you know the future, or at least a rough approximation of it. In the future state we have defined above, we are likely to see the emergence of several trillion dollar industries that simply don’t exist today. I call these the Five Inevitable Industries and they are listed below.
Green Hydrogen and E-Fuels
Direct Air Capture
Electrification of Industrial Thermal Loads
Mass EV Charging
Desalination and Water Transportation
It may be that only a couple ever make it to scale, or that others emerge that are not on this list. But I think that counting on the emergence of these five industries is a good bet relative to other prognostications you could make about our zero carbon future.
Why are these the ones? Because these are based primarily on what MUST happen, what is inevitable. And what makes them inevitable is:
They are massively scalable, benefiting from economies of scale both within their supply chain and also within each installation.
They leverage existing technologies relying only on the well understood learning curves that come with mass deployment.
They benefit from the rapid improvement of adjacent technologies, such as wind and solar.
The entrenched political and business interests are least threatened by and likely to see the most opportunity for themselves in these new industries.
These industries have the ability to reuse or retrofit large portions of today’s industrial and energy infrastructure with dramatically reduced carbon emissions.
Together they are sufficient to all but solve our climate problem.
Are there better solutions? It depends who you ask. There are many other values by which you can measure our response to climate change and by extension judge these solutions. When I say these are inevitable it is based on what I see as the current set of facts on the ground and the singular value of stopping emissions before it is too late.
None of these will satisfy the type of values-based advocacy or narrow efficiency arguments that lead you down the road of rooftop solar, the unlikely permitting of a massive number of new nukes, catching cow farts, or simply demanding that everyone stop driving and consuming. Don’t get me wrong, I’m still an all-of-the-above guy and some of these alternatives are things I wish would happen based on my own values, but if you’re predicting the trillion dollar industries of tomorrow, these will not be them.
Perhaps the most telling predictor of these Five Inevitable Industries is what they have in common. More on that in the next installment.
PART TWO: High Capacity Factor, Low Cost, Clean Electricity is The Nexus Of Deep Decarbonization
So what do all of the Five Inevitable Industries have in common? First, they are each currently available technologies that are being made cost effective by the increasing abundance of high capacity factor, low-cost, clean electricity. The extraordinary cost declines in renewable electricity allow us to leverage the sector in which we have made the most progress in the past two decades to decarbonize the rest of our society.
High Capacity Factor, Low LCOE, Clean Electricity in the Nexus of Deep Decarbonization
Green Hydrogen and E-fuels are perhaps the most advanced, or at least the most talked about, of these industries. While all of these trends are driven by the fact that carbon will be priced either directly (or indirectly through tax credits, etc) and multi-gigaton solutions will be prioritized, Green Hydrogen and E-fuels are further driven by the need for the retrofit and reuse of current infrastructure.
The capital expenditure and time required to replace all carbon intensive infrastructure in the necessary time frame is prohibitive. If we wait for all airplane engines, gas turbines, industrial boilers, steel mills, ships and other existing infrastructure to be replaced, it will be too late. Infrastructure is persistent , especially broadly distributed infrastructure like airplane engines that are point sources individually, but make up a massive emissions source collectively. These are far harder to swap out than utility scale power plants which are far more centralized sources of carbon emissions.
Moreover, liquid and gaseous fuels have an energy density, storage properties and other flexibility that make them far more valuable than electrons on a wire. Arguments about things like “well to wheel efficiency” of green hydrogen will fall away as it becomes clear that input energy is cheap enough, and the flexibility premium of liquid and gaseous fuels in certain applications is high enough, to make overall efficiency less relevant. We’ll see this in applications such as aviation, but also in certain industries such as the manufacture of steel and cement that require fuels capable of producing heat and steam at a quality that electrification cannot meet in the near term.
Simply put, the transition will require zero carbon fuels that are “drop in” replacements for hydrocarbons.
But net zero will not be achievable in all sectors and even if it is, by that point net zero will no longer be enough. Negative emissions solutions will be required.
Today’s direct air capture technologies are “too expensive” partly due to their energy intensity. It takes massive amounts of energy to fuel the chemical processes that capture and sequester carbon from the atmosphere. Luckily, we have an increasing amount of high capacity factor, low-cost, clean electricity to fuel such processes, and this is enabling the first large scale projects to become feasible. As these projects are built and we come down the learning curve on direct air capture technology, the cost of these facilities will fall, allowing them to run on energy that may have a lower capacity factor or be slightly more expensive. This will increase the geographic footprint over which these technologies can compete in much the same way that renewables have done in the past two decades. It’s important to note that this virtuous cycle of declining costs allowing for lower capacity factors or more expensive clean energy inputs is a characteristic of almost all of our Five Inevitable Industries.
Direct air capture will likely be the “backstop” technology for carbon abatement against which most other solutions are measured. For instance, if you can take carbon out of the atmosphere for $200/ton, a solution to stop carbon from being put into the atmosphere will need to be less than $200/ton to make sense. Even if a technology is slightly more expensive than this “backstop” price, the limits of underground storage and hesitancy of environmentalists to accept sequestration as a permanent solution will likely keep direct air capture from displacing other efforts to decarbonize the economy. Instead it will allow us more time to advance green hydrogen, clean steel and other zero carbon solutions and potentially provide a mechanism to undo some of the damage that we have already done.
Currently, 30% of all carbon emissions come from industrial loads, 2/3 of which are produced from boiling water. That’s a gross oversimplification, but not too far off the mark. Our economy consumes huge amounts of steam for various industrial processes. Much of this steam is produced in boilers or cogeneration of some type using fossil fuels, mostly natural gas. When most folks think of “electrification” they think of cities like Berkeley, CA, ripping up the gas distribution system and demanding that everyone use an induction stove, but that approach and the high profile controversy surrounding it are the rooftop solar of thermal electrification. In other words, highly visible, unevenly distributed and the subject of endless debate but ultimately not of sufficient scale to matter over the given time horizon.
What will truly move the needle is finding ways to electrify the production of steam or the baking, drying, melting and similar direct heating processes found in large industrial facilities. If the decarbonization of these loads is inevitable it is almost certain that large portions of that work will need to be done with either electric boilers powered with low cost, high capacity factor, clean electricity or using green hydrogen and e-fuels made from that same input.
Technologies that exist today can likely address much of this market for clean industrial thermal loads. Electric boilers and similar technologies can already provide steam at adequate pressures and temperatures to address large portions of this market. The typical refrain of electric solutions not being able to meet the quality needs of this market is limited to a few specific applications, leaving a huge majority of this market open to electrification. In fact, even those high temperature applications can be electrified by substituting green hydrogen or other fuels made from clean electricity for the fossil fuels currently in use.
This market in particular will require high capacity factor electricity or efficient storage of thermal energy as many steam loads are continuous and interruptions will be costly to the industrial processes that they support. This is a recurring theme throughout the Five Inevitable Industries and why I’m so pedantic about referring not just to clean energy but to low cost, high capacity factor, clean electricity.
PART THREE: Who Makes The Gas Pump? Who Makes The Gasoline? Which One Have You Heard Of?
So far we’ve hit on three of the Five Inevitable Industries – Green Hydrogen and E-fuels, Direct Air Capture and Thermal Electrification. These industries barely exist today, unlike electric vehicles which many believe are already on their way to mass adoption. But EV charging as we know it is in its infancy. As we move toward aggregated or mass EV charging as I’ve sometimes referred to it, we move beyond pleasant software interfaces and chargers that look like gas pumps. We are going to need distribution grid upgrades to go from having 5-10 chargers in the corner of a mall parking lot to electrifying a significant percentage of the entire parking garage. When this change occurs, EV charging is at least as much about the deployment of massive utility scale infrastructure as it is about charging networks, member growth, network effects and software.
Highly capital-intensive assets will need to be deployed with a combination of expertise in electric power, real estate, finance and wholesale power markets. Aggregated charging loads will increasingly participate in wholesale power markets as both loads and storage assets. Billions of dollars worth of distribution-level storage assets will need to be deployed, financed and optimized to buffer each mass charging site. Gigawatt hours of high capacity factor, low cost, clean electricity will need to be procured to meet a constantly shifting load curve. This procurement will be done in power markets that are also undergoing massive volatility and change as they accept more renewable generation, storage assets and demand shocks from electrification of other sectors.
In short, a trillion dollar market with a capital intensive and complex upstream supply chain must manifest where until just recently there was nothing.
The big question within this Inevitable Industry is who will win. The obvious answer here is the charging network companies, fresh off their respective SPACs and investing like crazy in their own networks. But dig a little deeper and ask yourself whether the functions above – asset finance, development and managing massive and dynamic demand for clean energy — are core competencies for any of these companies.
It is far more likely that the charging networks will expand by bundling services and other innovative marketing focused on network growth than by vertically integrating back upstream into hard infrastructure. For a long time, I had assumed that the utilities would dominate this space with investments in distribution level infrastructure, large scale grid edge storage, charging tariffs and the like. However, the speed with which the utilities are moving does not give me confidence that they will get there in time. This leaves a massive market without a clear winner.
The scale of energy demand and delivery that will eventually result from these massive charging networks will be like nothing the grid has ever seen. Making good on the promise of the EV revolution is at least as much about building, financing, managing and dispatching utility scale infrastructure assets as it is about the cars themselves. This is why I believe that the inevitable switch to EVs and the associated need for aggregated EV charging depends on the generation and delivery of massive amounts of high capacity factor, low cost electricity, and those with expertise in this area will be ideally situated to capture value in the eventual trillion dollar EV charging market of the next few decades.
PART FOUR: The Future of Water Is Clean Energy
So far we’ve focused on the rise of technologies that will solve the climate crisis and eliminate our emissions problem. The final Inevitable Industry that I see emerging is a little different in that it is not a solution focused on emissions reduction, but rather an inevitable adaptation that our society will be forced to make.
Access to clean, fresh water will be one of the largest challenges of climate change. Large portions of the world will lose reliable access to water for purposes of drinking, irrigation, sanitation and industry. Desalination and transportation technologies turn the water problem into an energy problem. That doesn’t necessarily solve the water problem, but in a world increasingly awash in abundant clean electricity, it gives us a pathway to convert the 97% of water on earth that is not potable into drinkable and usable water and move it to where it is most needed.
Desalination is a proven technology but it is highly energy intensive and still has a relatively high capital cost. This fits the exact profile of the other Inevitable Industries, allowing desalination to at first be enabled by broadly available low cost, high capacity factor, clean electricity. Eventually, once the cost has declined with mass deployment of desalination equipment, broadening the footprint where desalination can be economical to areas where high capacity factor, clean electricity may be a little more costly.
Water transportation doesn’t exhibit quite the same dynamic, but it is worth mentioning as water pumping loads already consume massive amounts of electricity in places like the American West where water is moved in large volumes for use in agriculture. And such large volume, long distance transport will only increase as the world seeks to distribute desalinated water or surface water from places that remain wet to places that are seeing decreasing water supplies.
PART FIVE: Industrial Scale Behind-The-Meter and The Remaking Of Retail Energy
As I wrap up this five part series on the Nexus of Deep Decarbonization and Intersect Power’s vision for a low carbon economy there is one open question with regard to all of these Inevitable Industries that I think is worth addressing. The location of these Five Inevitable Industries goes to the heart of how they will develop and who will benefit from this green industrial revolution.
Will we see electricity, green hydrogen or other energy carriers delivered over existing infrastructure to current industrial centers where these new industries will take root? Will we see “industrial scale” behind-the-meter renewables with less favorable levelized costs of electricity closer-in to existing industrial centers, thereby paying a little more for clean energy but avoiding the costs of grid delivery? Or will we actually see the realignment of the entire industrial economy with many of these new clean loads choosing to site in areas where they can access behind-the-meter renewables or otherwise cheaper grid-delivered clean energy?
I think it will be a combination of all three of these things. But one thing is clear, as a significant portion of our existing and emerging economy requires electrification, it will be a jump-ball between gas infrastructure, which currently serves much of this load, electricity infrastructure, and behind-the-meter alternatives to see who can deliver cost-effective solutions for this massive change in industrial energy usage.
The outcome of this free-for-all will dictate which entities own the customer relationships across the energy industry and might even upend the regulatory structures in today’s markets. This is the final element of the Five Inevitable Industries – massive disruption of the utility and retail energy business model. This is not what I think of as one of the Inevitable Industries per se, but more of a knock-on effect of these Inevitable Industries. If low cost, high capacity factor, clean electricity is the nexus which links and enables the Five Inevitable Industries, then the disruption of today’s midstream and downstream business models is the consequence of the realignment in energy demand that will come about as these Inevitable Industries scale.
By now you’re tired of hearing it, but all of the above can be simplified down to the following: High capacity factor, low cost, clean electricity is the Nexus of Deep Decarbonization.
It is the enabling factor that “turns on” these new zero carbon, trillion dollar industries. It will enable them to deploy at scale and come down the cost curve for their own capex, enabling them to buy more clean electricity and likely reducing the cost of that electricity further by bringing renewable generation technologies even further down their own learning curve. This virtuous cycle of demand and scale is the greatest hope we have for solving the climate crisis.
As a species, we are susceptible to a whole host of inconvenient traits including selfishness, mass delusions and the emotional desire to feel like an important part of an accepted group or something greater than ourselves. These things divide us today even more so than they have in recent human history. But as humans, we are also distinguished by our survival instinct, our capacity for innovation and our compassion for others who suffer. I choose to believe that it will be these last three traits that ultimately define our response to climate change. Because of this I cannot imagine a future where we fail to address this crisis. If my optimism is correct, then there is ample reason to believe that a large portion of the foregoing is, in fact, inevitable.
In my previous post, I addressed how, in the past, our nation has been defined by the extraordinary investments undertaken in the face of crisis. I also talked about the misguided focus on the outcomes of taxes in the debate on the President’s jobs plan. As misguided as I believe that debate to be, it is part of the public dialogue, so I want to give you my point of view on whether or not we can afford to place a higher tax burden on US corporations to solve the climate crisis.
Shocker…“Trickle Down” Doesn’t Work.
The 2017 Trump tax cut reduced corporate taxes to 21%, a level not seen since 1939. In the chart below, you can see that US corporate taxes have been between 35%-50% from 1939 until Trump lowered them. Much of those taxes were spent on extraordinary economy-wide investments, including World War II, the US highway system, the Cold War, and the Space Race, to name a few.
During that period, while corporate taxes were approximately double what they are today, US GDP grew by an annual average of 3.18% from $93 billion to $20 trillion, corporate profits grew from just over $8 billion to $2.25 trillion annually, and US per capita income grew from $710.82 to $61,196.67.
It is worth noting that the government investments these taxes funded gave us GPS, the Internet, transistors and modern microprocessors, aviation advances, nuclear power – basically everything that underpins the success of most modern corporations.
For much of the 20th century US corporations dominated the world economy, thriving both in spite of and because of higher corporate taxes and the government investment they facilitated.
But what if all that money had gone to corporations instead, for them to invest? That was the stated intention of the Trump tax cuts. The key question was, and still is, will such tax breaks contribute more to economic growth than they would have if the government had collected those dollars and invested them as we have historically done? If we wish to awkwardly evaluate the price of a transformative investment in our country against the lens of taxes, then private investment is where we must start.
The Trump tax cuts cost $1.5 Trillion in foregone revenue for the US Government, and the Trump Administration, who held the most aggressive view of the potential economic returns on such foregone revenue, estimated that it would create $1.8 Trillion in increased tax revenue from increased economic growth. In theory, the government’s “investment” in forgone taxes would be paid back in full via GDP growth, increased wages, and private investment by the companies receiving the tax cuts.
The last good data we have for 2019 (pre-COVID) tells a different story. While wages appear to have increased as the labor market tightened, GDP growth, which increased slightly in 2018, fell back to pre-tax cut levels, and growth in private investment by companies fell to -2% year-over-year after having sat at almost 5% in 2016, the year prior to the tax cut. Clearly corporations did not invest the money in the next generation Internet or quantum computing.
Where Did All the Money Go?
The reductions in corporate taxes resulted in record setting corporate profits. These profits were not re-invested into new technologies or manufacturing capacity, but resulted in a historic level of share buybacks where companies used the tax savings to buy shares of their own stock, increasing their stock price (and along with it many executive bonuses). As the chart below shows, share buybacks spiked by more than 50% in the two years following the Trump tax cut.
These buybacks and the corresponding increase in equity valuations were disproportionately good for those Americans who own financial assets like stocks. Let’s say, generously, that we’re talking about the upper middle class, but we all know that when Facebook and Amazon double and triple in value the impact for Zuckerberg and Bezos dwarfs anything that my mother’s state teacher’s pension fund or the average 401K is enjoying.
But even if you don’t care about income inequality, it’s clear that making millionaires and billionaires richer on paper and hoping this somehow convinces them to spend more than they already do, is a very poor means of pumping investment capital into the economy to spur growth in manufacturing or physical infrastructure.
Listen to the Billionaires Begging the Government to Take Their Money.
Any rational person seriously discussing the muddled, nuanced impacts of the above tax policy alongside US industrial expansion in World War II or investments in the transcontinental railroad, doesn’t need an economic model to see that these are totally different policy discussions. Further, can a reasonable person really look at the data below on taxes paid by major US corporations in 2018 and say that asking Amazon to pay a little more to fund improvements to the highway system it’s business runs on, or asking Chevron to shoulder the cost of renewable tax credits to internalize the externalities of their fossil fuels, is going to cause either company excessive harm? Can a reasonable person really say that asking them to do so would impact their investment behavior or the wages they pay after taking into account how they failed to change such behavior in response to the biggest corporate tax cut in almost 100 years?
Let’s ask the reasonable people who run these companies like the billionaire CEO of JP Morgan, Jaime Dimon, or the world’s richest man, Jeff Bezos. They both support higher taxes on corporations, tax reform to close loopholes on the wealthy, and massive government investment in solutions to the Climate Crisis. When the people with the most to lose are the one’s begging you to take their money and actually govern like the world leader that we are, you really don’t need that econometric model.
The debate over President Biden’s proposal for historic government investment to combat climate change is a colossal waste of time when the overwhelming facts of history are starkly laid out before us.
We are so distracted by the shallow rhetoric of “tax and spend” vs. “small government,” and elaborate economic models that try to estimate how much of a tax cut or spending increase will flow to each corner of our society, that this has become a perceived choice. Meanwhile, the choice before us now is not whether an extra percent on any given tax bracket will be spent unwisely or slow economic growth. We need to recognize that our choice is not about taxes and spending at all, but rather, it’s about investment.
Do we still have the unity and fortitude to make the multi-generational investments that have enabled our global economic leadership? Or are we so divided that we have no common future in which to invest?
Like many in my field, I am a student of economics. I have been taught to appreciate the econometric analysis of multivariable models that instruct us on causation and caution us against the anecdotal arguments offered in support of many political agendas. As I’ve grown older, however, I’ve realized that in addition to economics, we should all be students of history. While economic models are more accurate in the analysis of clearly defined dependencies over specific timeframes, one can easily miss the forest of history for the trees of narrowly defined econometric analysis.
History has Rewarded Bold Investments in the Face of Crisis.
History is defined by societies whose fortunes were pinned to their ability to collectively meet the crises of their day. The most enduring and impactful oness proved capable of rising to meet them, while the end of most “great” societies is almost universally defined by their failure to do so. And you don’t need an econometric model to see this pattern throughout our country’s history.
Between 1863 and 1869 the young United States government, in the midst of one of the greatest challenges to its own existence, undertook an effort to build a 2,000 mile railroad connecting the Eastern railroad network to the port of Oakland, California. The resulting railroad would connect the US West, with its natural resources and trade routes, with the Pacific and the rapidly expanding industrial economy of the Northern States.
The government’s investment would also bring together former soldiers of the Union and the Confederacy, and help the nation emerge from the polarization of the Civil War.
Despite the massive cost (an enormous 5% of GDP), cost miscalculations, and rampant fraud, the transcontinental railroad stands as one of the greatest infrastructure investments in the history of our country whose price tag was returned many times over.
Perhaps the most well defined example of bold investment transforming crisis into long term prosperity, is the US industrial mobilization during World War II. In a 2001 article, Pulitzer Prize winning biographer Doris Goodwin writes “America’s response to World War II was the most extraordinary mobilization of an idle economy in the history of the world…industrial productivity increased by 96 percent, and corporate profits after taxes doubled. The government expenditures helped bring about the business recovery that had eluded the New Deal. War needs directly consumed over one-third of the output of industry…By 1944, as a result of wage increases and overtime pay, real weekly wages before taxes in manufacturing were 50 percent higher than in 1939.”
The US Government invested over $4 trillion in the effort to win World War II, surpassing 40% of total GDP in 1945 alone. For context, President Biden’s original American Jobs Plan, with a $2.7 trillion investment over 10 years (*footnote Cato Institute / Fox News overestimate here), would have us investing only about 1.2% of GDP annually, largely in the fight against global climate change.
It’s Time to Boldly Fund a War Against Climate Change.
We look back at an investment that peaked at 40% of US GDP as being one of the greatest accomplishments in US history, morally, militarily, and economically. This investment changed the course of American history, set us on a path to decades of economic dominance, and secured our moral and social leadership globally. Today we have the opportunity to undertake a similar investment, once again transforming our country and securing our place economically, geopolitically, and morally with an investment about 35x smaller than the peak of our spending in World War II.
As we debate the President’s Build Back Better infrastructure proposal, we can spend the next few months comparing studies from conservative and liberal think tanks, or lie to ourselves and say we’re having a debate between “tax and spend” liberals and “slash and burn” republicans. But we are not choosing between these two things. We are assessing whether we as Americans can and will once again undertake a multi-generational, defining investment in a “War Against Climate Change.”
Next week, I’ll continue building on this and the idea that some of the most successful corporate leaders support higher taxes on corporations, tax reform to close loopholes on the wealthy, and massive government investment in solutions to the Climate Crisis. Stay tuned!
Intersect Power is a proud member of the Stamford Chamber of Commerce. Past sponsorships include Market on the Square, the Fall Festival and the Holly Jolly Christmas event.
HASKELL CHAMBER OF COMMERCE
Intersect Power is a proud member of the Haskell Chamber of Commerce. Past sponsorships include Wild Horse Prairie Days and the Haskell Christmas Parade.
BETTER STAMFORD SCHOOL SUPPLY DRIVE
In 2024, Intersect Power donated $5,000 to support the Better Stamford School Supply Drive, helping distribute school supplies to students in the Stamford area.
PAINT CREEK INDEPENDENT SCHOOL DISTRICT
As part of our support for the Paint Creek ISD, our donations have helped to fund a new athletics scoreboard for the Paint Creek Pirates, provide outdoor shade equipment, and purchase new drone equipment for their STEAM classes.
HASKELL INDEPENDENT SCHOOL DISTRICT
As part of our support for the Haskell ISD, we’ve funded a new athletic sound system and supported a $15,000 scholarship program to empower graduates pursuing higher education.
HASKELL COUNTY TEXAS A
Intersect Power donated $50,000 to the Haskell County TX A&M Extension Services, supporting the renovation of a community building dedicated to 4-H and other children’s programs.
KEEP HASKELL BEAUTIFUL
Intersect Power contributed $100,000 to Keep Haskell Beautiful to support several local improvement projects, including upgrades to the city of Haskell’s walking track and tennis courts, improvements to the Haskell Civic Center and new fire equipment for the Haskell Fire District.
Anneli Alers
Anneli is Senior Vice President Capital Markets
Anneli is responsible for overseeing the Project Finance, Portfolio Finance, and Treasury functions. She is a project finance executive with over 15 years of experience structuring and executing financing transactions spanning various types of debt and equity products in the renewable energy industry.
Prior to joining Intersect Power, Anneli was Senior Vice President of Project Finance for Invenergy where she worked on utility scale wind, solar, storage, and conventional power generating asset financings in the U.S., Canada, and Europe.
Anneli holds a BS, General Engineering from the University of Illinois Urbana-Champaign and a MBA, Finance, Accounting, Operations from The University of Chicago Booth School of Business.
Anneli lives in Taos, New Mexico where she enjoys many of the mountain and river activities the area has to offer and watching many spectacular sunsets.
Amarillo Sod Poodles
Intersect Power had the honor of serving as the presenting sponsor for the 2024 ‘Reading with RUCKUS’ literacy education program, in partnership with the Amarillo Sod Poodles! This initiative is dedicated to fostering literacy and educational engagement among local students by offering incentives as they achieve specific milestones. To launch the program, the beloved Sod Poodles mascot, RUCKUS, made special appearances at assemblies in participating schools, igniting excitement for reading among students. An impressive 20,242 students from 12 school districts across the Texas Panhandle enthusiastically took part in the program
Hereford Food Pantry
The Hereford Food Pantry addresses hunger by providing food for residents of Deaf Smith County. Intersect Power made a donation to support the Food Pantry’s efforts in combating hunger in the area.
Hereford Sports and Wellness Center and the City of Hereford
The Hereford Sports and Wellness Center provides wholesome sports programs, fitness opportunities, and other community-building activities for the citizens of Hereford and the surrounding region. Intersect Power collaborated with the Wellness Center and the City of Hereford, contributing to the construction of a new regional softball/baseball complex in Deaf Smith County. This park will benefit the city and surrounding areas by hosting regional tournaments.
DEAF SMITH COUNTY CRISIS CENTER
The Deaf Smith County Crisis Center provides support for victims of domestic violence and sexual assault. We contributed to the Crisis Center’s programs with a general donation.
PANHANDLE COMMUNITY SERVICES
Panhandle Community Services works to change the lives of low-income people by bridging the gap from poverty to self sufficiency.
We have provided funds to support the organization’s weatherization and assistance programs in Deaf Smith, Gray, and Roberts counties.
DEAF SMITH COUNTY
We are a proud member of the Deaf Smith Chamber of Commerce and recently provided funds to help support an initiative to add new signs in the community.
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Green Hydrogen and E-fuels are perhaps the most advanced, or at least the most talked about, of these industries. While all of these trends are driven by the fact that carbon will be priced either directly (or indirectly through tax credits, etc) and multi-gigaton solutions will be prioritized, Green Hydrogen and E-fuels are further driven by the need for the retrofit and reuse of current infrastructure.
