How Many Things Can A Bus Transit Study Get Wrong? – CleanTechnica

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Recently, I had the opportunity to sit down with Michael Raynor, formerly a managing director of sustainability and thought leadership for Deloitte and author of multiple books on innovation and strategy. We talked about not only an innovative approach to addressing Scope 3 emissions Raynor has developed, but also an odd case study of a bad study of bus transit that is creating problems in Canada, one which recommended a lot of hydrogen buses along with battery-electric ones. Below is the link to the first half of the discussion and a lightly edited transcript.

Michael Barnard (MB): Redefining Energy Tech sponsored by TFE Strategy. I’m your host, Michael Barnard. My guest today is someone whose work has shaped my thinking and approach to innovation for two decades, Michael Raynor, co-author with the late Clayton Christensen of the Innovator’s Solution. Until recently, he was a managing director working on sustainability and thought leadership for Deloitte. And now he has a couple of firms he’s invested in and founded, including S3 Markets. Welcome, Michael.

Michael Raynor (MR): Thanks. Nice to be here.

MB: And we’ve been talking quite a bit recently and yes, that’s going to be the subject of quite a bit of what we’re talking about. But let’s go back, let’s wind back. Not everybody’s as familiar with you, not all my audience is as familiar with you as I am. And there’s stuff I don’t know. I always like to start with, where the heck did you come from to get here? What’s the journey that led you here? Because you’ve got this amazingly strong focus on sustainability now, but you came from somewhere else.

MR: Yeah, well, I was. I was born in Brantford General, same hospital as Wayne Gretzky, but he got all the hockey talent. I grew up in Northern Manitoba, Thompson, specifically nickel mining town, and ended up going to university in the US and kind of backed my way into a series of consulting jobs until after a while thought maybe I might ask questions that might be a little more interesting than clients. So I decided to pursue my doctorate at the Harvard Business School and then to my shock and amazement, ended up back in consulting doing something that looked on its good days like I was a professor with no students and a consultant with no clients. So it was perfect. And did that for 25 years and had the opportunity to work on, as you mentioned, Innovator Solution with my late friend Clayton.

I did three other books in addition, most recently the book called the Three Rules, A Study on the Drivers of Long Term Profitability. And then the shift into sustainability happened around, I guess everybody’s on their own journey. For me, the epiphany was about 2017 or so when I was just reading different things that kind of come your way on this topic. Kind of long been interested, as I like to say, longtime listener, first time caller, and had come across a paper by a paleoclimatologist. There really are such people at MIT who was looking at rates of change in carbon concentrations rather than Absolute levels. Right. So the level of carbon in the atmosphere is really not a problem. Right. During the Carboniferous it was well over a thousand parts per million and everybody was fine. The issue is rate of change.

And when the biosphere changes faster than the relevant life forms can adapt, you get mass extinctions. And of the five big mass extinctions, four of them were caused by carbon pollution. The greatest of them was the permian extinction about 255 million years ago. And we are changing carbon concentrations, atmospheric carbon concentrations, about 200,000 times faster than they changed during the Permian extinction. So I’ll just say that again. 200,000 times faster. So when it’s the rate of change that matters and we’re five orders of magnitude beyond what triggered the worst mass extinction in the history of the planet. Well, I had to stop thinking about it because that scared the hell out of me. And so I ended up looking for ways to work on sustainability within the firm.

Found something that was appealing, bounced around on a number of different initiatives, and then a couple of years ago, landed on the set of ideas that has become what is now S3 markets. So there you go. I built your watch to tell you the time, but you made the mistake of asking.

MB: But as a consultant, you actually take the watch as payment, borrow the watch and tell them the time, then keep the watch.

MR: Well, I’m not a consultant anymore, so I clearly. Now you tell me.

MB: Yeah, no, it is the rate of change. Just to lean into that a little bit, I like to talk about the rate of change of temperature changes. You know, I say that between 25,000 years ago and 20,000 years ago, the atmosphere increased in temperature by a total of 5 degrees Celsius over 5,000 years. And that eliminated 3 to 4 kilometers of ice on all the continents. Now we’re on track. If we get to 2 degrees, that’s 40% of that, right? In a hundred years.

It’s 250 times faster than what eliminated all the glaciers on all the land masses of the world, pretty much. And that rate of change just makes it really hard for anything, including us, to adapt. So let’s start by getting S3 markets out of the way, because I spent a little time with you on this a year ago. I’m probably going to write about it at some time because it’s an intriguing idea. Tell me the insight, the aha moment, and then you know what it’s turned into.

MR: Right. Thanks. Yeah. So the high level observation for me was when I was looking at the work were doing helping companies trying to grapple with their net zero commitments was the increasing clarity around the notion that corporate level net zero is a fantasy. The idea that any company is going to make a net 0:35 or a net 0:40 commitment and actually hit it in any meaningful sense of the term is ridiculous on its face. Exclusively because of the scope 3 problem, right? So if you take your typical law firm, a law Firm is probably 1%, scope one and 99% everything else. And that everything else is all of the upstream emissions comes from the production of all of the things that go into all of the things that go into supporting a law firm.

And the insight for me was that when you look at where industrial emissions come from, 92% of all industrial emissions come from 80 or 90 different high emitting commodities that collectively account for 15% of GDP. So that’s it’s all the things you would guess, right? It’s aluminum, it’s nickel mining, it’s trucking, it’s all the agricultural commodities, et cetera and so forth. And at the other end of the spectrum, you’ve got 50% of GDP that generates 1% of emissions. And that’s a problem, right? So all the money’s over here and all the carbon’s over here and never the twain shall meet.

And so the observation that we made was that the standard approach says your obligation as a law firm if you’re going to make a net zero commitment is you’ve got to crawl up your own supply chain and find the bauxite mine in God knows where that led to the aluminum that’s sitting in the laptop. It’s ridiculous on its face. Not only can you not find it on the upstream trip, there’s no way in hell you’re ever going to track the molecules back down into the things you actually buy. It’s absurd. And there’s a lot of folks running around trying to cash checks telling companies that they can help them do this. I beg to differ. And so everybody’s scope three comes from the same place because that’s where all the emissions come from. They’ve got nowhere else as a source to be from.

So what S3 Markets does, is says to companies that have a net zero ambition. Look, stop wasting your time trying to find the carbon. That’s pointless. You will not be net zero until basically all of those, all of those commodities are produced in a net zero fashion, right? Global net zero is a cause of corporate net zero, not a consequence. And so if you want to pursue meaningful climate action, what you should do is precisely the thing that has proved so effective with scope 2 or electricity emissions. Right? You should invest in essentially an instrument that allows you to purchase the environmental attributes of upstream commodities produced in a radically decarbonized way.

And so our theory of change is that this will allow relatively few companies to aggregate and focus whatever it is they’re willing to spend on decarbonization, voluntary decarbonization, and support these lighthouse projects that are pursuing the radically decarbonized approaches that have line of sight to commercial competitiveness. Now that’s not true for all of these hard to abate commodities. Right. I mean air travel’s got pro. Anything where we need liquid fuels has got a long term cost problem. And that’s a different category. But the really good news, I think is that the vast majority of these commodities can be produced in economically viable low carbon ways. They just need the activation energy necessary to get over the hump, much like we’ve done with renewables. So we’ve got enough time that I decided to give you again the long form of the answer there.

But Scope three is all about working with companies that want to make a meaningful impact in global decarbonization in ways that are consistent with their corporate net zero goals. And so we allow them to draw a Venn diagram and identify those opportunities that lie in the intersection of those two objectives.

MB: And S3 acts as a broker between these white collar firms where 99% of their emissions are scope three and out of their control, and organizations which are attempting to create, for example, manganese in a completely decarbonized way.

MR: Absolutely.

MB: Where the traditional methods, approaches and energy sources and funding don’t allow that. So you’re bridging.

MR: That’s exactly right. Yep. So we take it upon ourselves to identify sellers of these inside credits of these environmental attributes certificates that are doing precisely that. And you don’t need huge scale. That’s the other thing that I think people get wrapped around the axle with is that they like. Well that’s a trivial tonnage. Well, of course it is, because nothing big starts big. Right. It’s just that’s not the way this works. And if you want to create radically decarbonized solutions, you have to build a small scale, large scope system level transformation. Right. Prove that it can be done. A good friend and colleague of mine refers to it as it’s not a fuel switch, it’s a system switch. Right.

If all you do is go in and find something that for 100 years has been optimized around the characteristics of fossil fuels and try and drop in a battery, you’re in for a world of misery. If you go instead and say, I’m going to redesign the production process around the new energy source that we need to use. Turns out most of the time, when you can get your energy for basically zero marginal cost, a whole bunch of new design options present themselves. And so the market, I mean, we have a climate problem because of market failure. So the market failure here is that capital markets in particular, and immediate level product markets more generally aren’t willing to fund these lighthouse projects. And too often government ends up getting captured by all the wrong lobbies.

Anyway, at the risk of invoking your kind words at the outset, one of the many things I learned from Clayton over the years, right, is that systems don’t change themselves. You build a different system outside of it and shove the old one aside. And so relying on incumbents to find ways to do things at the margins that are going to fundamentally change things they’ve spent their entire lifetimes perfecting, that’s what they call in the business a heroic assumption.

MB: I would say that both of us tilted at the windmill of transforming our global consultancies to be focused on the future that will be, as opposed to the profit centers that are.

MR: Well, you said it, I didn’t.

MB: But to that next point, a year ago, I didn’t ask you this question when we’ve been speaking recently because everybody foreshadowing a valid literary device. We’re going to talk hydrogen buses for quite a bit of most of the rest of this. But a year ago, when were speaking, you’re using the term insets. And that confused me because of my typography and visual background, which is quite sparse, but I had that language. And so you use the term insets as opposed to offsets. What’s the difference? And how do you defend people who say. To defend these insets from people who say, well, that’s just another voluntary carbon market offset that’s worth nothing.

MR: So it’s reasonable to say it’s a. It’s a bit of an inside baseball distinction. You know, it’s kind of like the, you know, the infield fly rule. You got to be a real pro to kind of tell the difference. And an offset is typically seen as something where you are investing in some kind of carbon absorption or carbon abatement process. Process that lies entirely outside anything related to your economic activity. Right. So, and I don’t mean to dismiss it at all and spend. I spent a couple of years trying to work on something to create financial mechanisms to fund reforestation projects. Because I think that’s a. I think planting trees are a legitimate thing to do. Lots of problems attached. So then make no mistake, we don’t need to disappear down that rabbit hole. But that would be seen as an offset, right?

So if you’ve got a law firm that says, okay, I’ve got all these emissions, and the way I’m going to address that is I’m going to pay money to soak up the carbon that gets emitted in the course of me performing, doing my thing. We can have a different conversation about how defensible that is. But kind of with taken on its face, on its own terms, that’s not a crazy thing to go do. That could work. An inset, on the other hand, is where you’re decarbonizing the production of the inputs that you in fact require to do your job right. So if you’re a law firm and you’re flying around, you want to decarbonize air travel, if you’re using laptops, you want to decarbonize the lithium that goes in the batteries.

And so you want to decarbonize the production of the commodities you rely upon in the quantities you rely upon them. And that’s what makes it an inset. And the reason it’s an inset, as opposed to actual direct value chain supply chain decarbonization is what I was alluding to before. If, you know, if you’re a law firm in Poughkeepsie, finding the lithium in Peru that landed on your desk is an impossibility. So instead you look for ways to decarbonize an equivalent quantity of production elsewhere. Now, there’s lots of conversations you can have with people say, yeah, but wait a minute, we’ve got say’s law. So you’re supplying additional lithium to the market, you’re not going to offset as much as you actually produce. To which I would say, yeah, true, but not relevant. Because in the end, right?

No, and this is just between you and me, you understand? Don’t tell anyone else. No company has got a checkbook big enough to buy enough insets to actually declare themselves net zero. It’s impossible. Not going to happen. You need 150% of revenue. Forget it. And if you look at what companies are actually willing to spend, it’s like 0.05% of revenue if you’re lucky, and that’s fine. We can save the world with that you get me the S&P 500 to give me 0.05% of revenue and 10 years from now, the world’s going to be a very different and much better place. So all I’m. All we’re doing with S3 is saying, look, let’s leverage the framework that’s in place. Let’s use this construct of insets to get the right thing to happen and trust in a fundamentally different theory of change.

So I don’t want to get wrapped around the axle about, you know. Oh, but you’re double counting. Oh, but you’re. This. Don’t worry about it. The object of the exit. If we’d lost our minds with that around renewables and renewable energy credits and virtual power purchase agreements, we wouldn’t be where we are with renewables. Right. So my view of it is that the folks who get really exercised about this are concerned about the problem that we have with the electricity markets now. But the reason you have those problems with RECs today is because they’ve been so fabulously successful. So don’t load my fabulous little magnesium project out in New Brunswick. Don’t load it with all of the problems that have visited the rec market after 35 years of success, like once the insets are questionably additional and are no longer displacing dirty product.

That means you’ve won. Right. That means there is now enough of that production out there that it probably no longer needs the subsidy. And now it’s time to move on to the next hard problem.

MB: Yeah. So the two themes here, one, the tilting at windmills of trying to get large bureaucracies to better. And the second is avoidance of emissions, not cleaning up after emissions, not sweeping up after the thing is done. And those come together into our recent little experience fighting city hall in Mississauga. Why don’t you lead off? Because you reached out to me on this a week or two ago and now I’ve just been sucked into a vortex of quite remarkable awfulness.

MR: Well, you’re welcome. My gift to you. Yeah.

MB: It is my life, as I think you know. So tell us why we’re talking, why we’re fighting city hall, what triggered this?

MR: That’s a good. You know, it’s not that long ago, so clearly I’ve only got a few good years left because I can’t remember precisely how I ended up tripping over the Mississauga hydrogen bus pilot. So I gathered this is something that now that this has been approved some years ago, I think 2022, they. They started they started the planning and the approval process, but the actual pilot deployment that they have in mind has yet to be funded. And so I thought that makes no sense. And, and courtesy of LinkedIn I ended up tripping over your work and sort of the clash of anti Hopium folks who, from whom I’ve learned a great deal pretty much close to certainly the folks who pointed me in this direction.

And now I feel that I know enough to have an informed opinion about the relative merits of hydrogen and battery powered electric vehicles. So I took it upon myself to send an entirely unsolicited email to the mayor and council of Mississauga and said, I’ve got a question for you guys. What are the following 15 cities have in common? Which is they’ve all done what we’re about to and it’s all ended very badly. And so as you might expect, mostly ignored. A few folks wrote back and said where do you live if you’re, I mean these are my words, not theirs. Where do you live if you’re not in my ward, I’m not interested. And to her credit, my ward counselor, we’ll give her the shout out. Deepika demurla said, I would love to learn more about this. Why don’t you apply to council?

You can be deputed is the term of art and make a presentation. So I’ve got five minutes. I’ll choose my words carefully. So I’ve got five minutes with Mississauga City Council on October 30th and I’m gonna for whatever it’s worth, let them know what I think. Back to your quixotic metaphor. And I guess the tower at Mississauga does look a bit like a windmill and I will find out the hard way what effect that can possibly have and then well the rest of it’s your story which is out of that you ended up bumping into the Is it do we say Cutrich analysis the city of Brampton.

MB: I don’t think I’ve ever said it out loud and I have a reader’s vocabulary. I’m going to go cutrick the Canadian Urban Transit Research and Innovation Committee or council one of those, you know.

MR: Bravo. Close enough. Yeah.

MB: Founded in 2015. It is as I understand it, a not for profit member funded and you know, some funding from municipalities engage in research and reporting and think tank for urban transit decarbonization. So that’s this is its space, this is its jam. Right now it has probably 50 members 40 or 50 members across industry, academia, municipalities and transit organizations. Of various types.

MR: But, but. Forgive me for interrupting, but. But member funded. Right. So go. I wonder, I wonder how the funding works amongst the members. I’m going to guess it’s not equally shared and they don’t sort of pass the hat and Everybody chips in 20 bucks and that’s how it gets. I don’t know this is true, but I have a suspicion.

MB: Well, there’s funding and then there’s funding. They actually, for their membership, they say, and here’s funding that you can. Memberships that you can gain and what the benefits are. And so they’re, you know, some of them are in the range of $8,000 a year and some of them are more. And I’m sure then there’s special project funding and stuff like that, you know. And many of the people who are on this organization are undoubtedly completely virtuous and trying desperately to do the right thing because it’s a tough thing to do. As I’ve shared with you, I have a tremendous amount of respect for transit organizations. They are insanely good operational organizations who deal with little transformation and they are making small amounts of dollars go an amazing distance for quality service for, among other things, in North America, especially the least advantaged among us.

Yeah. You know, In North America, 92% of weekday trips are by car because we built a cult. We’ve built an entire infrastructure and urban landscape that is based on getting around by car. You know, when you and I last spoke yesterday or the day before, you were in your newest Tesla and stuck in Traffic on Highway 10 on your way to the ghost station so you can get downtown.

MR: Right.

MB: But that’s kind of where we are. We can get to collectors by car for some of us. And. But that’s what it is. And buses are there for all the people who can’t afford cars more than not. And so it’s a very difficult challenge we have with this brawl we’ve created. So the transit agencies that are involved with CUTRIC definitely have their hearts in the right places. I would say that probably all the academic organizations, the universities that have memberships have their hearts in the right places. They’re doing research related to urban transit decarbonization. They’ve got urban affairs and urban studies programs. They get engaged with studies on stuff. Tremendous amount of work there. Although of course there’s a lot of academia which spirals down into dead ends.

We’re just not going to put overhead wires and have catenary overhead wires when petagraphs on top of cars or little electric Wires in the roads that cars attach to. I’ve got a European acquaintance in this space who just loves that. I’ve got a couple and maybe for big freight. And so then there’s other organizations that are of less. I would say they’re not necessarily. They don’t have. They have an agenda that is different. So right now Putrik has three members who are natural gas utilities. And you kind of sit there and go really decarbonizing. What do natural gas utilities have to do with low carbon buses and trains in cities? And the answer is they’re pushing renewable natural gas and they’re pushing compressed natural gas.

20, 25 years ago, when we didn’t have batteries, a bunch of people said, hey, compressed natural gas is the answer. And there. So there’s a whole bunch of CNG buses running around. And now the big answer from the fossil fuel companies is, oh, renewable natural gas or hydrogen. Right. So we end up with this situation where Fortis bc Fortis, Alberta, and most importantly, from Ontario’s perspective, Enbridge are members. And Enbridge, the person responsible for business development for their gas is actually on the board of directors of Kutryk. Yeah, that seems like a conflict of interest personally.

MR: Right. At a minimum, it’s a Caesar’s Wife problem. Right. Not only must there not be a conflict of interest, there must not appear to be a conflict of interest, you.

MB: Know, and so then we have Ballard Power, the B.C. Company which has managed to lose $1.3 billion, $55 million a year on average since 2000 and has never turned a profit. And it’s been involved in fuel cell trial after fuel cell trial around the world. It’s sold fuel cells to China, it’s sold fuel cells to Europe. It’s. And it’s, you know, selling fuel cells which end up in buses and vehicles which end up rusting in parking lots because the trials inevitably end up in failure. And so, you know, I was kind of like looking at this. I was aware because unlike you, this is my radar. This is a big part of my patch. So it was on my radar. I was aware that, you know, Mississauga was looking at. And I try not to beat up Canada too much.

I figure if I publish about everything else, I don’t have to go deep and annoy Canadians because I feel bad. Right. And there’s bigger fish to fry usually.

But you triggered me. You got me looking at this. So then you sent me some stuff on their. What they, you know, was related to the stuff that they had in terms of Mississauga. And so I looked at it. There’s some questionable assertions in there. There’s some stuff that doesn’t.

MR: Nothing you hadn’t seen before in broad outline, I’m sure.

MB: But I didn’t expect to see it in a Canadian transit, an independent transit organization’s material. It made hydrogen seem a lot more feasible and viable and it made it cast some asparagus at battery electric buses. And, you know, I was like, that’s odd. And so then, you know, I published on that and saying, you know, there’s some questionable stuff here and, you know, definitely it’s not going the right way. And then I kind of went back and, you know, did. So one of my contacts is Professor Ben Flo. He’s the Danish knight of all things and academic, is so affiliated with Oxford and the IT School of Copenhagen. I think I got that right. And of course, he’s the author of 2023’s best book, Business book of the year, according to virtually everybody, how big things get done.

And so one of his big things is reference class forecasting. Now, of course, reference class forecasting says go get as many data, as much data from other projects that are like the one you’re doing and cast a big net and then estimate from that and come up with the averages of budget and duration from all the data that you get from other projects and then use that as the baseline estimation for your project.

MR: Right. More colloquially, who’s done this before?

MB: Who’s done this before? And there’s a lot of that data that’s publicly available. And so because I know this, I mean, I was involved with a. The Swedish Rise Research Institute. They did a study on decarbonizing road freight in Europe. Right. And so I was on the board of advisors for that study along with the hydrogen lead from Daimler as an example, like the board. And David Saban. David Saban is a professor at. I’m always questioning if it’s Oxford. I was Cambridge or Oxford? Cambridge or Oxford. [It’s Cambridge.] He’s also the founder and director of the center for Sustainable Road Freight. So we’re giving advice to the researchers who are doing the modeling for decarbonization potential for road freight. And that included biofuels, synthetic fuels, hydrogen fuel cell buses, directly electrified buses with batteries, overhead container wire buses, and compared to actual diesel emissions.

And we did that. And part of my job was to say, well, let’s test the assumptions, what he was asking of me. And so I was going and looking at what is the example from the real world. And so I found, for example, that California, the United States, it’s a wonderful place. It’s a narcissistic naval gazer oversharer, which means any data that you want, they’ve published and made public. Unlike China, where it’s just impossible for researchers like me to find really high quality data about detailed stuff unless the World bank has helped fund it. And so I went and found the data on all their refueling stations which were out of service for 2,000 more hours than they were pumping hydrogen in their highest volume six months.

I found all the data on their hydrogen fuel cell buses, which have 50% higher maintenance costs than the diesel buses and 100% more than battery electric buses. Right. And, and so the reliability of refueling and the reliability of buses we brought back and we put that some, you know, variant in it because the numbers I say the, for hydrogen refueling stations, it’s 10 to 30% of capital expenditures are spent on operational maintenance and fixing them every year.

MR: Right. So you’re buying a new one every three years.

MB: You’re buying a new one every three years. It’s nutty.

MR: And forgive me, but forgive me for jumping in, but that looks very different PS from the glossy brochures that they hand you when, when you’re saying, gee, I wonder if we should have hydrogen buses. And it’s not like the folks who are selling it to you either don’t know that’s what’s good. I mean, they know you needed maintenance costs. They give you a number. What one doesn’t know is the extent to which those numbers are grounded in the data, the kind of data that you’re juicing here.

MB: Yeah. Now the other thing is the EU has been trying desperately to shove hydrogen, the square peg of hydrogen, to the round hole of transportation for 20 years, 25 years. You know, they’ve been, their jive program has been funding stuff. And the nice thing there is every year they publish a status report. And so in 2023, the end of 2023, they published, well, the beginning of 2024, they published the 2023 status report. And I went through the entire thing across their fuel cells. Fuel cells fail on average every three years and have to be replaced.

MR: So you’re buying a new one of those every three years on top of it.

MB: And they’re 40 to 50, 40 to 45% of the cost of bus is the fuel cell. Now, I don’t know. I wasn’t able to parse down whether that included all the extra stuff in the bus, but it’s really expensive. Whereas they’re also unable to get beyond 20 months of drivetrain warranty for fuel cell buses in anywhere in Europe. Meanwhile, they’re getting five year full parts and warranty, like all service and all parts warranties or 8 year full drive training warranty, including batteries. Try.

And so I was kind of like looking at this and going, well let’s do a reference class forecasting and working it up. And I did that. Then, you know, that turned out to be. Well, it looks like you get a smaller number of buses. You can get 12 battery electric buses for the price of five fuel cell buses and you’ll get better service out of them. Well, this led to something else. A city that is not far from where you’re sitting, Brampton now, if memory serves, because it’s been a long time since I tried to even find Brampton on a map. Basically you start at the CN Tower and you go north and a bit west and you end up where you are In Mississauga, about 20 km, 25 km away. And you go another 10 or 20 km and you get to Brampton.

MR: Pretty much, yeah. You just go north on the 410 from the center of Mississauga. Yep. And Brampton’s huge. Brampton. I mean, call me a liar. For 10 or 15%, I think the population of Brampton now is like 700,000. Yeah.

MB: And it’s a huge sprawling bedroom community of Toronto, but it’s also an industrial community, and has a bunch of distribution centers and industrial parks. You know, it has an industry. It’s not everybody’s just getting up in the morning, getting their cars or getting a go transit and heading downtown.

MR: It’s gone through the same evolution that Mississauga went through. Right. You started as a bedroom community for downtown, then you end up with a bunch of branch plants from the US Fortune 500. And then you end up with your own kind of service and light industry and distribution hubs. And it’s a predictable process.

MB: So then we got to the point where I published a couple of things and what happens is information comes out of the woodwork. Another contact in Ontario reached out and said, hey Mike, here’s the actual report that CUTRIC did for the city of Brampton that led to them with recommendations for a blended battery electric, hydrogen bus suite and diesel.

MR: By the way, they run all three for like seven years.

MB: Yeah, longer actually. I think they retire the last diesel quite late. You know, which is reasonable. You’ve got to actually run until you.

MR: Accumulate enough buses on its face. That’s not a disqualifying observation.

MB: Yeah, it’s a transition. Now we’ll talk about. Because you had some really great observations. Now I went through that once and we’ll talk about my findings and then we’ll talk about your findings because your findings dwarf my findings. So just for everybody, if you’re kind of interested, there’s really big numbers coming.

MB: But the nice thing is CUTRIC’s assumptions, which are, as far as I can tell, embedded in their techno economic physics based model, which was invented originally by the founder and the person who founded CUTRIC. You know, they created it and as part of their initial thing, that’s in its third version and it actually has the sum symbol in the middle. So I’m not even going to try and pronounce it. It’s just like the artist formerly known as Prince is what the name looks like as branding. As branding goes, it’s an odd choice, but. And now it’s in its third version. But I always go to the reports and then look at the actual assumptions as much as possible. What are the units using per unit of cost for hydrogen? And you know, that was kind of the first big what the heck I found.

MB: So because of hydrogen, there’s this illusion in hydrogen for transportation and hydrogen energy circles that eventually hydrogen will be dirt cheap. And reality is it’s not going to be. And they also have this illusion that it’s going to be cheap at points of distribution as opposed to points of manufacturing. Just getting hydrogen to places to use it, unless you have a big pipeline, is expensive. And so it costs two to four bucks to make a kilogram of hydrogen from natural gas. Canadian. And then According to the US DOE, it takes about 14 bucks to move it by truck to a refueling station. So that means, oh, call it 16 bucks. That seems to be a reasonable price per kilogram of gray hydrogen.

MR: Well, the cushion which hasn’t gone anywhere in about forever. Is that right?

MB: No. You can look around the world. Most of the hydrogen refueling stations, all the ones in Europe, like there’s seven in Austria, for example, I discovered 20,000 electric vehicle recharging stations, seven hydrogen refueling stations. You look around the world, there’s a declining number in California because Shell got out of the business because it was a mug scheme. But in California it’s been up as high as 36 US$50 Canadian per kilogram of hydrogen dispensed retail. In Europe, it’s 12 to 25 Euros, which is like 20 to 40 dollars delivered. And that’s gray hydrogen, 99% of it. Right. And so that sounds, you know. So what number is CUTRIC using? Well, they’re using $8 Canadian.

For the cost for gray hydrogen delivered, like all in. All in all, there’s no. Well, not quite all in. They do actually price the cost of refueling stuff. I’ll get to that. But just getting it delivered, they’re half the price point for the major consumable operational expense item.

MR: Yeah. So all into tricky turn of phrase. I meant production transportation. Yeah, yeah.

MB: And so like Air Products, I think is their name. They have a facility in Sarnia. They manufacture it from natural gas and they truck it to industrial consumers.

But it’s not going to be cheap. It might be cheap to make, but getting there with a tank, it’s expensive. So that was kind of thing one, and that’s a swing of up to $200 million by itself. Now’s the time to say, well, $200 million compared to what? If that’s compared to hundreds of billions of dollars, maybe that’s okay. But this is where it gets hinky. The report actually picks something. They three scenarios, did a battery only, hydrogen only. And they did a blended scenario, you know, around 700 electric buses and 400 battery buses. And so, you know, that blended scenario is the one that they picked. And it was $8.94 billion for the blended scenario. And the battery only scenario was $8.95 billion. The difference was 0.01 billion. That’s 0.1% of the total cost.

And I looked at that. I have a weird background. I started out as a computer audit technician guy in an accounting firm. I said, that’s far below the level of materiality for any finding. I kind of pointed you at that. We’ll get into what you found because it’s very interesting. But basically at that level of quantification of a 20 year scenario based study, 0.1% variance between two options, they’re exactly the same. Yeah. Even if the modeling is perfect. Even if the modeling is perfect.

MR: And what I can remember there is if that number was because they modeled it in three ways with gray, blue and green hydrogen. And I can’t recall if they modeled. They couldn’t have given all three of those the same cost. So the 9.85, was that green hydrogen or gray hydrogen, do you recall?

MB: Mostly gray hydrogen until green hydrogen arrived and they did price green hydrogen More appropriately, you know, perhaps even too high in one case, but problematic. And so blue hydrogen, by the way, has the same problem as gray hydrogen does, is you don’t make it on site at the bus station. You have to make it somewhere else and ship it.

MR: Right, well, so put a pin in this, that this is a little bit out of order. But one of the things that I looked at was, okay, you’ve got three different scenarios for carbon emissions based on green, blue or green. So there’s 10. Let’s just pretend all three of them cost the same, exactly the same amount of money. So that’s a fantasy right there. But we’re not going to worry about it. We’re going to say they, you’ve got a $10 million advantage regardless of the color of hydrogen you’re using, and then say, all right, so in every case the battery only scenario has lower emissions.
And since the only reason you’re doing this is to have lower emissions, a question worth asking is how much, how many tons of carbon are avoided for your $10 million if you were to pursue battery only as a consequence? And so I’m going to look at the numbers here so I don’t get it grossly wrong. It turns out that if you. Yeah, here we go. So if compared to the gray hydrogen scenario, you’re paying $58 per ton avoided. That’s really good by the way. I mean, if it. Because this is a ton avoided, right? So this is not sequestration where maybe the tr. The tree burns down. This is not like, this is hardcore. Hey, no kidding. It just never gets emitted in the first place, right?

MB: This is like in the very high insets versus offsets.

MR: Yeah, absolutely. Yes, absolutely. See, these are highly reliable. So, okay, so it’s 58 bucks a ton on a gray hydrogen scenario. It’s 91 bucks a ton on a blue scenario, and it’s $144 per ton on a battery only scenario. And that’s not a particularly expensive price to pay, by the way. No, those numbers are perfectly reasonable. So you could look at it that way and say, okay, fine, I’m going to believe everything you just told me. I’m going to think that $10 million price difference is rock solid. And I’m going to pretend that green hydrogen costs the same as gray hydrogen.

And even under those scenarios, you could look at it and reasonably conclude, well, insofar as this is a climate initiative, right, that is using buses to achieve a climate outcome not a climate outcome used to achieve a climate initiative used to achieve a bus outcome. Let’s realize the value of the abatement. And it’s not a crazy cost. And so there you go.

MB: If they actually had costed the abatement, that would be great. But one of the observations we made is they assert a tonnage avoidance, but they never priced carbon.