Will The Midterms Change US Energy & Climate Policy? — Ep282: David Victor

[00:00:00] Speaker 1: Does that then mean this is back on the agenda, that we could get a centrist position on a kind of all-of-the-above clean energy policy again? [00:00:06] David Victor: First of all, I don't think it actually went off the agenda. To me, what's interesting is it could have been a lot worse. People are building a lot, especially solar and batteries. Technological case is really clear. A lot of the investment in new energy is connected to data centers where the business model is speed to power. You can do solar and batteries connected to the grid very, very quickly. The weak link in all this is going to be expansion of the grid. That's the place to really pay attention. There's a bipartisan bill that's working its way through Congress. But the fundamentals in terms of the technology are there. Most of the deployment increasingly is in the red states because you can build things in red states, in the Republican states, as opposed to in the bluer states. That's a huge bifurcation. That's a huge problem for Democrats, actually. [00:00:58] Speaker 1: Hello, I'm Bryony Worthington, and this is Cleaning Up. This week, the U.S. held its midterms, a historic set of elections that were widely seen as a referendum on President Donald Trump's second term in office. The Democrats were the overwhelming winners, taking over both houses of Congress and winning seats in once deeply Republican states. So what does this all mean for U.S. energy and climate policy? To answer that question, I'm joined today by David Victor, professor of public policy and climate policy. At the University of California, San Diego. Please join me in welcoming David Victor to Cleaning Up. David, thanks so much for joining us here on Cleaning Up. We've got a lot to get through today, but I wanted to start, first of all, by asking you to introduce yourself, please, in your own words. [00:01:45] David Victor: Sure, I'm David Victor. I'm a professor of innovation and public policy at UC San Diego, and I'm also at the Scripps Institution of Motionography and the Brookings Institution. And I work in the field of industrial organization. So it's how changes in technology and regulation affect the structure of industries and ultimately changes in the entire industrial system. I happen to focus a lot on the energy system and climate change. [00:02:07] Speaker 1: And the reason we're talking today, although we would always have a great conversation about all of those topics, is because we're doing a quick recap of what's just happened in the U.S. midterm elections, which the whole world has been transfixed, watching this, I mean, hugely complex process, right? Every two years, the U.S. goes to the polls and it's designed, isn't it? It's designed to try and keep the legislature in step with public opinion, right? That's why we have midterms. And so what happens is every so often you have these kind of really big pivots, like it's been described as a meteor, a blue tsunami. I mean, it has been quite remarkable, hasn't it, what we've just seen? [00:02:51] David Victor: Yeah, it's extraordinary. In some sense, this is the hallmark of democracy is you have elections periodically and through the elections, you check people in office. There's been a huge check on the Republicans. It has been a blue wave. I think a lot of people expected a blue wave. Nonetheless, this is even bigger than folks had expected. I think one of the reasons that people weren't sure what was going to happen is the polling has always been a little bit off here and there. And the polling methods have gotten better, but people really didn't have confidence in that. The polling all suggested that this was going to be just an onslaught. It's particularly interesting because the Democratic Party is, despite this incredible victory, Democratic Party is actually very unpopular. People aren't sure what the Democratic Party stands for. Their image of the Democratic Party is being shaped by people on the far left, the so-called progressive wing and further progressive wing, the Democratic Socialists of America and others. The mayor of New York, Mamdani, is part of that. And so the image of the Democrats is pretty negative, but the image of the Republicans is even more negative. And it certainly didn't help the Republicans that the President Trump, who's deeply unpopular, wanted to run as the guy who was going to be the source of victory for the Republicans. And they just got crushed across the board. At the national elections, they got crushed. At state elections, all kinds of states have gone from either being unified Republican states to purple states or mixed government states to now fully Democratic states. So there's been a big shift in power in the direction of the Democrats, but it's going to happen again in two years. And in two years, we're going to have the presidential as well. [00:04:26] Speaker 1: And just to sort of take a step back to kind of, I mean, I've been here now, what, maybe on my fourth year, and I'm still learning about this amazing Byzantine election process that happens so regularly. And what we had was a set of elections which would determine the makeup of a third of the Senate. So every two years, a third of the Senate is re-elected. The whole of the House of Representatives is up for re-election, which means that they're really only ever sitting in two-year blocks, very volatile. And then you had governors, state governors. That's a seemingly random process of, you know, they're in four-year terms. And so some of them coincide, some of them don't. And then also some houses, state houses were being elected. So, like, thousands of seats. And what's another quirk of America's system is often there are measures on the ballot, right, actual ideas that you're taking to the public to get their popular opinion on, to get them into law. So it's a really wild thing, right? A ton of stuff is happening. [00:05:26] David Victor: Yeah, and so you have, in addition, at the state level, you have governors, you have legislatures, and then you have lots of local officials, you know, attorney generals who are responsible for prosecuting the law. You have mine inspectors, you have treasurers, you have lieutenant governors who don't really do anything. So you have a lot of elected offices, some of which are consequential. We're going to see a tremendous amount of attention to regulators. So in a number of states, regulators are actually elected directly. Think about the Corporation Commission in Arizona, which is the regulatory body. It remains Republican-controlled, although now you've got, looks like we're going to have what's called a trifecta. So Democrats in charge of the governorship and both houses in Arizona, but the regulator being with Republicans. Texas, something similar. The regulator is now two to one. The Republican seat flipped from a Republican to a Democrat. Probably didn't help that the Republican was making all kinds of racist comments about Indians at football games. But a lot of other weird things happen in this round in Texas. Georgia is going to be one of the most interesting states. The regulatory commission in Georgia switched from being Republican-leaning to being Democrat-leaning, along with a Democrat who's taken the governorship. And so for energy issues, many of which revolve around electricity and all these concerns about electricity rates, there's going to be a lot of attention to the regulatory part of this. And all of that's mainly happening at the state level, not exclusively at the state level. So you have, I guess you described our elections as Byzantine, and I suppose they are. But I think that's intrinsic to a large country that's a federal system. So, I mean, India is an even larger country with a federal system. Its elections go on longer or even more Byzantine than ours. I think that's just kind of intrinsic. And it's also intrinsic to this direct democracy push where, frankly, elected officials often don't do their jobs and they put things on the measures on ballots. So you have, for example, millionaires' tax in the state of Washington. You've got a billionaire's tax in the state of California. You live in the state of California. I live in the state of California. A lot of wealth is accumulated there. That got defeated. So you have lots of things that normally you'd expect government to do that government's not doing, that's pushing out to the voters. Often with, in this case, Byzantine is the word, Byzantine wording. And so the voters, when you sit down to vote in California, it takes a long time. You have to do like a research project to figure out what to do. [00:07:52] Speaker 1: Yeah, no, I'm currently lecturing at UC Santa Cruz and one of the students gave me their ballot, basically. And it's a booklet, right? It's almost an inch thick of all of these things being described. And you need to sit down. The ballot paper itself, like, stretches out. It's like a foot and a half long. I mean, anyway. But just as you've already started to, you're getting us onto the topic of what does this all mean for the things we care about on cleaning up, which is mostly, you know, climate and energy, right? And I think, is it fair to say that, you know, this was an election about American people expressing their deep unhappiness with the way the government was being, well, the way the country is being run, both domestically and internationally. But it was really just a sense of, you know, the people who are flying this plane don't seem to know what they're doing, right? And I don't think really energy and climate really featured, right? It was much bigger issues about cost of living, inflation, tariffs, wars, masked ice agents, racism. You know, there's a whole host of things that I felt like, as you said, this was really the Republicans losing rather than the Democrats winning. [00:09:00] David Victor: Yeah, so the Republicans definitely put, did an epic performance of losing. There's no question about that. And that was helped by the, by the incredible unpopularity of the president and this war. The president was elected to focus on immigration and controlling the border, but not being inhumane about it and dealing with inflation and high prices and the sense that things were out of control in the rest of the world. We were entangled in all kinds of wars and activities and so on, whether or not that sense was correct or not, that was the mood. And pretty much on every single front, he violated what he, the principles that he, that he followed to getting elected and thus lost his base along the way. They didn't switch. They stayed home to some degree. Centrists switch parties, incredible Latin American vote in the United States to switch just aggressively against the president, against the Republicans. You saw that in Texas, just extraordinary. And I will say the Democrats ran some very good candidates. So they, they've run a, the, the election in, in Texas is a great example. So the successful democratic candidate in Texas ran on an all of the above energy platform. So it's lowering prices, more flexibility. That's going to put him at odds with a lot of the left wing of the democratic party, which is very excited about renewables and efficiency and things like that. Um, and, and, you know, that, that's going to be hard for the Democrats as they, as they try to actually govern. They don't really have any mandate to govern at the federal level. What they have a mandate to do is to, is to chair both, uh, both houses of Congress. And so they're going to have investigations and they're going to pass legislation. There'll be marker legislation for the future. Um, there may be some opportunities for bipartisan work. I'm sure we can, we can talk about that, but, but the Democrats have to be careful because they, they ran, they took advantage of this incredible opportunity and they didn't blow it. Which I think for many Democrats is already an accomplishment. And, and in doing that, they have to make sure that they stay focused. Uh, there are three polls now, three legitimate polls, three serious polls that, that point to corruption as a major factor. I think a lot of people were surprised to see that we expected a month or so ago going into the election and it was going to be mainly about inflation and competence and wars and so on. All of that was true, but on top of it, you've got the corruption angle. So a lot of people trying to figure out how do you run investigations to draw attention to the corruption of the Trump administration and the Trump family in particular, without getting sucked into some kind of vortex. That's endless where you've issued subpoenas and not being complied with and back and forth, and then you lose track of the bigger issues that the American public really wants to, wants to pay attention to. So energy, almost nowhere was energy or energy and climate directly on the ballot, almost everywhere energy, at least was indirectly on the ballot in the form of concerns about, about energy costs. [00:11:54] Speaker 1: And, you know, there's, there is this sense now that you've got this opportunity at a federal level to hold this administration to account, right? The, the bulwark that you needed, but we were relying on, you know, this sort of Supreme Court, weren't we really? Because the Republicans were missing in action. So there was no checks and balances on, on the White House and on Trump. So, but now we do have that. And as you mentioned, is it likely that what will happen is that Democrats will start forming a legislative agenda just in order to almost flush out what are our positions going to be going into 28 and the presidential election? But also, politically, we can make Trump even more unpopular if we keep putting bills in front of him and he feels he wants to veto them or override the will of the Congress. Is that going to be a strategy, you think? [00:12:40] David Victor: Yeah, they're going to do a lot of that. And along the way, they're also going to get Republicans to vote against things the Democrats think are, hopefully, Democrats think are centrist. There is this, of course, ongoing risk that wings of the Democratic Party are going to end up recreating again the image of the Democratic Party in the minds of Americans, which is that the party's too far left and out of touch. Trump will not be on the ballot in 2028. Other people will be on the ballot. J.D. Vance will be on the ballot. He's probably the closest to Trump, although already putting distance between him and Trump over the Iran war. There was clearly distance before. Now it's out in the open, at least conspicuously out in the open. Marco Rubio will be on the ballot. I mean, there'll be a lot of people on the ballot who aren't Trump and will be conspicuously not Trump. And presumably some of them are going to be tacking to the center. So that's a big risk. There'll be a lot of Democrats on the ballot as well. And so you've got this chaotic primary process. And in that chaotic primary process, one of the goals is to figure out how early on to attract attention and money and get momentum. And so this legislative process will be part of that. We're also going to see a lot of this happening from governors. And I think that's always great news. Governors have run things. Senators and members of Congress, other than their offices, and sometimes barely that, don't run things. So we're going to see a number of people who are governors who are going to be running, presumably, for president. And so a lot of state policies, despite all the chaos at the federal level, where it's possible that basically nothing's going to happen except chaos in Washington for the next couple of years, that's going to put a lot more attention on what's happening at the state level. [00:14:20] Speaker 1: There is this one piece of legislation that Trump got through, the one big, beautiful bill, or whatever it was called, which in a sense just ended a lot of support for clean energy. The things we care about, right? That all of those tax credits, which were brought in, were by and large taken away for renewables, kept in place for some things like CCS and nuclear. But there was this, you know, they tried to unpick the Inflation Reduction Act of Biden, which was one of his signature achievements. But so is there a way in which, I mean, those subsidies essentially have stopped, the ones that we're talking about. But is there a sense of support for clean energy still, do you think, amongst Americans? Do Americans equate clean energy with lower bills, you know, less air pollution, cleaner water? Is there a sort of general sentiment that this is quite a popular thing? And because now we've realized Trump is just a, you know, a busted flush and it turns out a lot of bluster and not very good at anything, does that then mean this is back on the agenda, that we could get a centrist position on a kind of all of the above clean energy policy again? [00:15:30] David Victor: Yeah. So I think, first of all, I don't think it actually went off the agenda. So when I look at what happened from the Inflation Reduction Act, the IRA, to the one big beautiful bill, those are what are called reconciliation bills. So they are passed with different rules on Capitol Hill that allow you to just have a working majority. And then the president signs them. So if the president has the same party on Capitol Hill, then you can put together a reconciliation bill. And so long as it meets the rules of reconciliation, which is basically about spending, then you can get it passed. So Biden had that. He had a trifecta. He had both houses of Congress and the presidency. And that produced the Inflation Reduction Act, and barely. The Inflation Reduction Act already had a lot of compromises in it that were pro-gas and a little bit other fossil fuels, not as much as certainly with the Republicans. Then Trump had the same thing, but also with a narrow majority. To me, what's interesting is it could have been a lot worse. And the renewables credits, I mean, let's set aside offshore wind. The president is being in his bonnet about offshore wind. And so offshore wind is dead for a generation, I think, more or less. But the rest of the renewables could have done much worse. Instead, what happened is the credits were sunsetted. So we now actually have had a surge of people acquiring equipment and putting projects in place and so on because they want to get ahead of the deadlines. And some of the deadlines happened already earlier this year. The rest of the deadlines happen over the next couple of years. And so we're seeing a continued buildout of renewables in the United States. And then we'll see a plateau for a couple of years and because of the ongoing chaos about what happens with those credits. All that said, people are building a lot, especially solar and batteries. I mean, the technological case is really clear. A lot of the investment in new energy is connected to data centers where the business model is speed to power. You can do solar and batteries connect to the grid very, very quickly. The weak link in all this is going to be expansion of the grid. That's the place to really pay attention. There's a bipartisan bill that's working its way through Congress that might be passed in the so-called lame duck session, the one that happens between the election and the new Congress being put into power. So that that happens, that might help a little bit on the transmission side. But the fundamentals in terms of the technology are there. Most of the deployment increasingly is is in the red states because you can build things in red states, in the Republican states, as opposed to in the bluer states. That's a huge bifurcation. That's a huge problem for Democrats, actually, is is despite running on affordability and lowering energy, lowering energy prices and so on. To do that, you have to build stuff. And Democrats, frankly, have had less of a less compelling agenda on why we should believe Democrats that we're building that we're building things. So I see the overall picture and there's a couple other elements here. I see the overall picture is actually more positive or not as negative as has been often portrayed. The other thing that I think is really important here is that there's a bipartisan consensus around the need to onshore, to be less dependent on imports in particular from China. And so we've seen all of these both bills have provisions for for American production. You have bonus credits and a variety of other mechanisms for American production. So you've seen this big onshoring of production capacity, especially in red states, and that's changed the politics. It doesn't automatically change the politics. That was the kind of theory of politics behind the Inflation Reduction Act, and it wasn't automatically executed. It didn't automatically happen. But now you've got NGOs working state and local level showing members of Congress, here's what this legislation did. Here are here are plants in your district that are the result that are the result of this. The Trump administration over the last couple of years has gone to, in particular, Japan and Korea and shaken them down for big investment commitments. Nobody really knows what that means in practice, but these are hundreds of billions of dollars. What's plausibly going to happen is we're going to see those Asian vendors build factories in the United States and sell product in the United States. [00:19:36] Speaker 1: I tend to agree with you, I think, David, that there's been a lot of focus on some pretty high profile terrible things, like the paying of the billion dollars to the offshore wind industry to not build and, you know, these crazy symbolic things that Trump really got a be in his bonnet. But underlying all of that were the fundamentals, right? That batteries plus solar is a fast way of getting electrons on the system. And there is this growing demand for energy that people are racing to meet, which is raising a lot of, you know, raising a lot of technologies up. But that's all predicated on data centers. And if there's one thing that did emerge in this election, it's the kind of unpopularity of data centers. And I think there was something like 35 or 40 ballot measures, which were basically saying we don't want any more data centers. So what's going on there? [00:20:24] David Victor: Yeah, so I find it interesting as somebody who studies electricity business. For a decade or more, we've all been expecting demand for electricity to rise. The narrative for a long time was it was electrification because of decarbonization. And we're seeing in some states, California probably most prominently, because of decarbonization concerns and energy security concerns in electric vehicles, a significant part of the growth in electricity in California is related to EV charging. But that's the aberration. Across most of the country, the main growth in electricity consumption is from data centers. And it's concentrated in a few places. It's historically been concentrated in Virginia. There's a network in Loudoun County outside Washington, D.C. The politics there have kind of gone sideways. Then it moved to Texas. The politics in Texas have gone sideways. Governor-elect Hinojosa, Democrat, she announced at election that she was going to put a pause on all new data center construction and so on. I think the politics of data centers are all over the place. And they're not owned by either party. Both parties are trying to figure out what to do. They know the data centers are really unpopular. When you look at the data, it's not entirely clear actually why the data centers are unpopular. My theory of this is that this is like the data centers are like flypaper. And attracted to the flypaper are all of these concerns that are actually at core about AI and about the concern that AI is out of control. And thus, you have all these issues that attach to the data center drama. For example, noise. It's a concern in some communities, not in other communities. Impact on property values. Well, that's good news for some people and bad news for other people. Power prices. That's a real issue. But almost everywhere now, there's a whole set of provisions being put in place to try and protect ratepayers so that they aren't paying the extra cost of integrating the data centers on the grid. That that's being put on the data centers themselves. There's federal rules about that that are kind of hard to implement. A whole lot of state and local rules and good regulatory practices. Water is a great example. I think basically no large new data center is doing open cooling. It's all closed loop. And so there are kind of a whole bunch of non-issues that are being attached to data centers. And it's because of this larger set of concerns. Nonetheless, it's real. This is one of the places, one of the only places where energy was front and center in the election. Not directly because of energy, but because of data centers and this fear about the impact on power prices. And left and right, it's easy to oppose data centers. Nobody has yet really figured out, from a political point of view, how to have a pro data center argument, a pro responsible data center. You've seen clutching and gearing that different people are trying to make this argument. In principle, the argument should be a good one. Because if you add a lot more load to a grid and you do it responsibly, then you're amortizing the cost of that load over a larger customer base. And that actually can lower rates. There's a whole bunch of studies that have been done about that. But I think people don't believe them because all those studies are happening in a way that kind of seems abstract. And people are pissed off because they're seeing electricity rates go up. Inflation, because of inflation, everything's going up. But they're sensitive to the posted price and not to the real price. And in that world, I think it's become very hard to get people to believe the argument that more data centers would actually be good for us because they would help lower power prices for everybody else. [00:23:52] Speaker 1: Yeah, it's really counterintuitive, isn't it? And you're right. It is a complete flypaper of issues, including the ownership model of these data centers, right? They're often owned by these big tech companies, these hyperscalers. There's this kind of revolving door where people are selling credits to each other. And this feels like the tech community is really racing away from the rest of America in terms of its wealth aggregation. And then there's the concern about the AI itself taking away people's jobs, right? There's already a fear that your children's futures in America are going to be less good than your own, right? This inversion of the American dream where, you know, you work hard, you get your kids into good schools and they progress. That's kind of inverted now. People are worried about their kids' futures. And this all gets, you know, the totem for all of that is a data center. This physically large, imposing gray box that's just showing up in communities and really alienating people. [00:24:49] David Victor: Yeah, I think it's also created a lot of challenges for the power industry. Like this is an industry that's mainly regulated. Some parts of it are actually stayed on. Most of it's privately owned, heavily regulated. And it was kind of a boring industry for a long time. And frankly, if for something as valuable and important as a grid, boring is good. You woke up in the morning, you did the same thing you did yesterday. And you had a little bit higher power sales, a little bit smaller change here and there. Basically the same technology at bigger scale. Everything's now on the table. You wake up in the morning, you're doing something new. You've got small modular reactors. You've got solid state transformers. You've got HVDC. You got all these other things that are coming inside the industry. And demand in some places is really rising quickly. All that said, the data center build out is a huge challenge for the utilities because they don't know what to believe. Some large fraction of the data centers being planned in Texas right now, it's a place that I've looked at the data most recently, are being planned by companies that never built a data center before. Like, these are cowboys. Most of those projects are going to die. And then on top of it, you've got all these cross holdings inside the tech companies that have made AI tech very, very frothy. And you're already beginning to see some of the air come out of that bubble. And that's a world where there's going to be powerful incentives to reorganize companies and do less with compute. And so, all that says that the total demand for data centers might not be as bullish as people are projecting right now. But two or three years ago, the opposite was true. And so, you just don't know. It's very hard to build and expand a grid in an environment where you're making long-term asset investments for something where you don't know what's going to happen to the core industry over a period of two or three years. [00:26:32] Speaker 1: Yeah, and I think there's also an element of not wanting your politics to be for sale to the highest bidders, right? I mean, what we saw in Texas was remarkable, really. You know, Elon Musk put in hundreds of millions of dollars into this election to try and keep Texas red. He completely failed, spectacularly. And almost his involvement was one of the reasons why, you know, Tallarico, who's now the elected senator for Texas, from the Democrat side, he was actually referencing in his victory speech why, you know, trillionaires shouldn't be allowed to buy Texas. And it became a very resonant thing. So, it's all wrapped up in so many issues, as you said. [00:27:12] David Victor: The Texas Senate race was extremely expensive. It was a crucible in which all these issues of corruption and money and politics are flowing. And around which there's some kind of investigations that are going to happen at the federal level that may end up actually not focusing on Texas money. That was all done legally, as far as we can tell, given the way Supreme Court has interpreted its vision of the Constitution. But it will focus on other things like the ballroom and Jeffrey Epstein and so on. And that will just be a cancer on the Republican Party, I think. There's big money in the Democratic Party, but the amount of money that came into the Republican Party, this cycle from very, very wealthy individuals is truly extraordinary. And, you know, some way to, one way to think about what happened on Tuesday night with the election is, is this is a Trump and Freud story. You know, people are really taking glee in the failure of the Trump administration, but it's also a Musk and Freud story. And there's a lot of money from Elon Musk in particular, but not only that has fueled the election. And I think had the election been closer, had there been more difficulties with the voting process and so on, essentially the voting process, Byzantine or not, went without a hitch. We'd be having a very, very different story right now. So a blowout along with a clean election was enormously helpful to American democracy. [00:28:38] Speaker 3: Cleaning Up is proud to be supported by its leadership circle. The members are Actis, Alcazar Energy, Arup, Climate Imperative Foundation, Copenhagen Infrastructure Partners, Signum Capital, Davidson Kempner, EcoPragma Capital, EDP, Euroelectric, KKR, Mitsubishi Heavy Industries, National Grid, Octopus Energy, Quadratura Climate Foundation, Schneider Electric, SDCL, and Vartseva. For more information on the leadership circle, please visit cleaningup.live. To keep up with all that's going on at Cleaning Up, sign up for our free newsletter, which gives the latest on the episodes we're recording, events we're hosting, and stories we're watching. To sign up for the newsletter, visit cleaningup.live. [00:29:36] Speaker 1: I mean, now that we've got this kind of changed architecture at a federal level, Congress has definitely shifted. There are some measures that are on the ballot or are going through the houses already. The BHA, or I can't remember what the acronym is, Dave, you'll have to remind me, but this is the sort of jobs and affordability bill that's currently in the session. Now, what's going to happen to that, do we think? [00:29:57] David Victor: Well, so this is the hallmark of this is it makes it easier to permit things, to build stuff. The key to affordability is building stuff, in particular transmission lines, but not only transmission lines. This is a bipartisan effort, came out of the Senate, significant support from some environmental groups, a lot of folks in industry, a lot of concerns here. That kind of typical piece of legislation involves compromises, a lot of people unhappy, a lot of people happy. It will be the great test of what happens in the next Congress, because although it will be debated in what's called the lame duck session, so the session of Congress between the election and the new Congress being put in place, it will reveal whether the Democrats think they've won so big that they could get a better deal later on, in which case then this deal is going to come unglued and they're going to get nothing later on, or whether pragmatic voices will prevail, and we're going to pass this and the president will sign this, and then we'll make some progress on improving, at the federal level at least, the way things get permitted, limiting environmental reviews, having so-called shock clocks where you have limited time to intervene, speeding up the whole process, reducing risk, reducing the capital cost of those delays. All that's good news, and I think it's going to be a great political test of whether there's going to be any bipartisanship at all. [00:31:08] Speaker 1: And it'll test both parties, well, it certainly tests the Democratic Party, because it speeds everything up, right, not just clean, it speeds up fossil too, and that's the big worry, right? [00:31:18] David Victor: Yeah, the big worry is that it speeds up fossil, and the big worry is also that in speeding up the environmental reviews, that many of the interventions that have been key for the environmental community, those interventions can't happen. That's why, one of the reasons why it's so hard to build stuff in America. [00:31:32] Speaker 1: Also, what perhaps characterized that shift in the Republican Party was, let's just take away the things we don't like, right? Let's just smash a few things, take out USAID, you know, take a hammer to the things we dislike about subsidies for clean. You know, it was a destructive agenda. Whereas many of these very charismatic leaders now who've been elected on the Democrat side, they're promising, we're going to build, we're going to make things better for you, we're going to put money in your pocket, we're going to give you access to healthcare. That is hard work, right? It's hard work to deliver, and for people to actually see progress, it's going to take time. And is there, you know, is there a risk that we've over-promised, you know, like it, that there's just, it's just going to be too slow and hard to deliver these things, given where the world is, given how much has been smashed up by the Trump administration? [00:32:20] David Victor: Certainly in retrospect, what Doge did and what the Trump folks did more generally and what they did with immigration enforcement is like across the board that was put diplomatically overreach. It was enormously destructive. The harm has been generational. So the whole Doge effort and the attacks on government, which have always been there at times, but what just put on steroids, all of that has really harmed, and yet extraordinary people remain in government, but it has harmed government for at least a generation. Almost everything that people want to do at the federal level requires government to be competent. Think about using advanced technology in the Pentagon for advanced weapon systems. Think about the nuclear revolution, where a huge fraction of the nuclear buildup that we're having with existing technology and new technology is in one way or another funded at least partially by government. That requires government to have the capacity to identify what should we fund, what shouldn't we fund, and so on. Think about all the early stage innovation around clean tech, which earlier on was solar and battery and wind and so on, and EVs and EV charging and advanced chemistry, and now is the new wave that's going to produce fusion and so on. Think about all of that requires government to have skills, health research, science research more generally, and so that disconnect was already apparent in the Trump administration. Think about all of that, and Trump's office of science technology policy issued this report last summer on a vision of science technology for the future that was a full-throated innovation vision, classic Republican, frankly, classic Democratic vision as well. And then you look at what the administration is actually doing, which is de-skilling all this stuff, and you have grants from some parts of the National Science Foundation down by 90% on the tax on the universities and so on. And so all of that harm that's been done to government is going to make it hard for anybody, Democrat or Republican, to really take government out for a drive and do things that people want government to do. And I think my own thinking on this as an analyst is that firms know this, and so what firms are doing is they're trying to look a few steps down the road and figuring out how in this chaos world do we insulate ourselves against the vagaries of wild and crazy federal policy, unreliable policy. And a lot of the strategy is you invest in technology, you invest in things where you know what the technology is, you put it in place, you manage it, and then you can reduce your exposure. Some of the advanced nuclear is like that, a lot of solar and wind is like that, efficiency is like that, natural gas is like that, I mean the natural gas story in the United States is extraordinary, it's deeply unpopular with the far left, but natural gas is what keeps the lights on in most of the country. It's the reason why power prices are not higher than they would be otherwise, and there's a big export story there as well with LMG, and so that's the kind of real work of energy policy and attention to climate, but that work is on any front, no matter who's in power, going to be incredibly messy. [00:35:14] Speaker 1: I completely see that, and also, you know, especially here in California, you've got this risk-taking capital, right? So where you might need governments to underrate in subsidy programs and settled policy and grant programs, you name it, actually, the risk tolerance in some parts of the American capital stack reduces the need for that, right? Because there are people who've got enough aggregated wealth who can take bets on a whole host of technologies and see if they can pull them down the cost curve just using market forces alone. And, you know, you see that in the nuclear story with the Kairos reactor that's been privately funded, yes, yes, the government has had to give it, you know, permits and find sites for it, but there's been not that much public money needed for something as big as that. And it's across the board, right? Advanced batteries, you name it, there'll be elements in which the private sector and private capital is doing the job of government for it, and arguably is more stable as a result, right? [00:36:12] David Victor: Yeah, I think that's true, although it's true up to a point where you then need to deploy technology. So, you mentioned Kairos. Kairos is a salt-cooled, very, very interesting technology. It's one of a cluster. TerraPower, based out of Bellevue, Washington, another one. Oklo, which is issued an IPO, is yet another one. X-Energy, which is a helium-cooled small modular reactor. Plus, you've got small versions of big reactors. GE Itachi is actually building in Canada, the Darlington facility, actually building a whole series of these small boiling water reactors. So, when you take a step back from those, you see the tech, in some cases, can be funded privately, sometimes as a hobby. You've got high-net-worth individuals, mostly dudes, mostly love physics, maybe physicists themselves and want to go do physics. Huge amount of private money into Commonwealth Fusion and a variety of other Fusion startups as other examples there. So, that's great, but there's just a big difference between doing that and maybe an early plant and then scaling up there. So, the Kairos deployment will be done connected to Tennessee Valley Authority, which is a state-owned company here. TerraPower's deployment of their first reactor, which is being built in Wyoming, is a cost share with the federal government. Let's look at actually the up rates of existing reactors and the restarting of reactors. There's one at Palisades in Michigan. There's two other reactors that are going to be restarted. The old Three Mile Island, been renamed to the Clean Energy Center, but it'll be restarted in a few years. Duane Arnold, a third plant that'll be restarted, probably a couple of others after that. Every single one of these deals, like bar none, every single one of these deals involves in one way or another federal support, loan guarantees, direct credits and so on. That can't continue forever. The fiscal capacity of the U.S. federal government, although I've asked, is not infinite. And that whole reckoning on the money side and then also on the government skill side, we were talking about a little bit ago, that requires government. And that's the real work of governing, and I think we have for too long pushed that off, and now we have to reckon with it. [00:38:27] Speaker 1: Yeah, no, I totally hear you. And actually, but again, coming back to this risk tolerance of the private sector, there could be a complete shakeout in some of these nuclear plans, right? Because it's one thing to pitch to a bunch of investors you're going to do first of a kind and then you've got these presumably incredibly aggressive cost reduction projections that are going to be new. You can compete with unabated gas, right? But many of them are not going to make it to that. And many of them are going to be very then dependent on politics. But as we've seen, there seems to be a tolerance for believing in the future. If Musk achieved anything, he convinced capital markets that you don't need to look at my balance sheet today. Think about the future. Think about where I'm going. And, you know, he did that with Tesla. He's done that with SpaceX. The AI guys are doing the same, right? They're not necessarily, well, Anthropic, set aside Anthropic, who does seem to be now revenue generating. A lot of this is all sold on the promise of the future. And it seems to sustain itself for quite a long time, right? This kind of, I don't know, you know, it's a bubble, but how long does it go for? [00:39:36] David Victor: But, Brianna, you live in Silicon Valley. That's the future. And that is one of the beauties of this kind of incessant optimism and willingness to take extraordinary risk and a particular financial risk. And so that's been, to me, what's really interesting about the new nuclear play, the so-called small modular actors, some of which are not that small, is they are being designed from physics principles to have low or essentially zero classic nuclear risk, but massive financial risk. Because you're doing something totally new and trying to figure out how to get a license and so on. All that said, the Nuclear Regulatory Commission has completely reworked its procedures such that it now is able to issue construction licenses to these new reactors based on their assessment of the physics risks here. The TerraPower, which I mentioned, has its construction license that it got earlier this year. Any day now, literally any day now, we're going to see the one for Kairos. And what Kairos already has there is we're going to see the one for X Energy, which is a joint venture with Dow Chemicals, where they're using high heat in the reactor for petrochemical purposes. That's been a kind of classic challenge in the decarbonization world. What do you do about high heat? Well, one answer is you might work on the nuclear front, a bunch of other possible answers. And so all of that seems really, really exciting. There is a certain vaporware element to it. You know, in Silicon Valley, a business plan sometimes is a napkin and a Sharpie and a big smile. And so we have dozens of these new reactor companies that have now emerged. Seems like everybody's got a reactor company. Most of them will die. That's great. At some point, we're going to have to settle that out. And we're going to need a few companies that are going to survive. [00:41:21] Speaker 1: Can we just switch? Because, I mean, I can hear Michael saying in my ear, what are you doing talking about nuclear so much? It really wasn't on the ballot, right? And in a sense, that is good. Yeah. [00:41:31] David Victor: Nuclear wasn't on the ballot. Here's a reason to talk about nuclear. In a world where politics flips and flops. We had a huge flip on Tuesday to the blue direction. It will come back. In that world, success requires building and holding together a coalition of folks in the center. It requires when the IRA is on the menu to have a bunch of people who say, hey, we want to keep the renewables provisions. We want to keep the nuclear provisions. We want to keep CCS provisions because we have projects going on. We want to keep those jobs. That changes the politics. And so the investment in the technology and the plants create their own tailwinds. And things that used to be hard politically become easier because you've got a coalition that's in the middle. It's a purple coalition. It's blue and it's red together. And a bunch of other people who have no color associated with them. And so nuclear is part of that. Solar and batteries are part of that. Grids are part of that. Electrification more generally is part of that. Clean fuels may become part of that. A lot of cool technology on the clean fuel side that could scale advanced jet fuel and so on. And so I think the reason nuclear we're going to hear more about nuclear is because it seems like this is a Republican thing. But in reality, the politics on the left, not the far left, but the politics on the left have shifted the direction of more nuclear. When we come back to climate, to me, what's most stunning is this should have been a year where climate was on the ballot everywhere because we have all these extreme events. We're going into the biggest El Nino ever. We have the wildfires that create existential, literally existential risk for utilities in the Western United States. We have cyclonic storms in the east of all kinds of climate impacts. And that's just the United States. Think about the rest of the world. Incredible heat waves in Europe, global fires in Europe and on and on and on. This should have been a year when climate was on the ballot, and yet it was almost nowhere on the ballot. And that's because the Republicans don't want to talk about it because their party's in disarray about that matter. Some of the leading candidates for office, the Republican candidate for governor of Alaska, don't believe in climate change. So you've got all that stuff going on on the right. But even on the left, the voters don't care enough about climate on a regular basis for most Democrats to talk about it. And they're worried about getting a reputation for being the kind of climate chatterer and not talking about things voters care about health care premiums and on and on and on. And so we're going to we're entering in a world we've I think been in this world for a long time where climate is always indirectly on the ballot in the form of of the way we build an energy system that is clean and affordable and reliable. And the way we become resilient to deal with the inevitable impacts of climate change. We put all that together. We're overall globally making progress on the climate problem, not enough progress that we're in for a lot of climate change. But but I think because of the fractured nature of American politics could be hard to see climate reliably on the on the agenda, except in some states that are so blue that they're always going to be talking about climate. [00:44:28] Speaker 1: Yeah, no, no, I completely agree. And, you know, we've just in the UK just seen our government, arguably one of the most progressive governments on climate, not just energy, but climate to, you know, saying they're going to pause auctions for clean electricity now and switch to focusing, I hope, on the lower hanging fruit of where you don't have to pay a green premium anymore. Because switching to an electric vehicle for many people saves you money as well as reducing emissions. And so there's this kind of much more pragmatic approach to what are the things we're going to lean into that have got multiple co-benefits and that we can build industries around. And I'm very much hoping the UK stays the course on electric vehicles. But it's a really interesting question. Where does the US go now on transport and vehicles, having been such an early champion way back to the days of GM and the first electric vehicles and then through Tesla. And now we've got other brands emerging. We've got the Ford teaming up Ford teaming up with CATL in preparation for electric vehicle rollout, which got paused. And now Ford is selling batteries into the electricity sector, which is fascinating. So where do we think things go with regard to that big part of the transition? [00:45:46] David Victor: Yeah, so I think the fundamentals, again, we have to go back. I start with the fundamentals. In a world where you think policy is going to be erratic, the fundamentals matter even more. In a world where policy can be stable and send long-term signals and you're working on some technology that doesn't have a chance of working, but maybe it'll work in the future. Think about a lot of the hydrogen history. You overweight the markets where policy is reliable. And even then, a lot of the hydrogen stuff blew up. In the United States, because of the problems at the federal level, you're either looking for reliable state policy, like in California and a handful of other places. And even there, though, you're going to start to see some pushback on higher prices and impacts on reliability and so on. Or you're going to look at fundamentals. So I start now almost always looking at the fundamentals. The fundamentals in the electric drivetrain are really powerful. Overall system efficiency is higher. Cost of batteries come down dramatically. Performance of batteries has gone up. Range has gone up, which is a huge factor there. And so I see that revolution is still rolling out. I think in a lot of the country, probably it's going to roll out with plug-in hybrids more than pure battery electric vehicles. My lab at UC San Diego does work on the charging side of things, and particularly in a solar-dominated grid like California or the entire Southwest. You want people to be charging in the middle of the day. So that's a human behavioral question because they need to be plugged in when they're at work or away from the home as opposed to at night. So how you get that behavior changed is important. It points to the fact that the business model around charging is still immature. And so all that still has to be worked out. But meanwhile, the technology continues apace. And I think that's pretty encouraging. And if we get that right, the EVs are going to be a grid asset. I'm a little skeptical about two-way charging because mostly people are not going to leave the cars plugged in the fleet. So that might be the case. But responsive charging during the day or during periods of critical need for the grid could generate large loads that are on the grid that are grid assets. Unlike the classic data center load or aluminum smelter and so on, which is mainly kind of 24/7, although we're now starting to see some variability, lots of cool technology around the data center side. And so in a world where the grid becomes even more dependent or more central to our lives, getting demand response from industrial large loads, industrial residential loads and so on, that's going to be really, really important and EVs could be a big part of that story. [00:48:10] Speaker 1: I mean, it's interesting you said about hybrids. My hope is America will commercialize range extended vehicles where, you know, it's by and large an electric drivetrain, but it's got a kind of top up capability because that seems to fit the terrain and the lifestyles of American consumers. And there's a really exciting example of that range extension that I'm following with Hart Aerospace, which is in the aviation sector as an L.A. based, originally a Swedish company, we did an episode with the founder Anders Forslund. You know, they've done their first test flight of a large 130 person hybrid range extended electric aircraft, right? This could be hugely exciting. It would be very, you know, in keeping with the American dream and American story of aviation, it would be great. It would be great for America to suddenly lead in a new sector that hasn't yet been dominated maybe by China and where you've got a story that speaks to America doing great things again. [00:49:10] David Victor: Yeah. And there's indeed a whole wave of cool innovation around electric aircraft or electric hovercrafts, individual aircraft, where you engineer the blades in ways that reduce noise pollution, a lot of other things early days, let's say, but super interesting. I think the EV story and there's two things about the EV story I find particularly interesting in the United States. There are some markets, California is the leading one, where EVs are now such a large part of the grid that during critical grid moments, they could provide a huge asset. So a couple of years ago, we had an episode where the grid went to very high demand levels. And they actually sent a text to all Californians saying stop. And the text produced significant response. So my lab has done based on what we've learned about human behavior. We've done some calculations on the plausible size of the demand response from EVs with a reasonable price set of price signals. And it's several gigawatts, much more than you need during these critical periods to help assure reliability of the grid. So that's going to be seen. And over time, grid managers, grid operators, CAISO in the California case, will use that asset. And if we have the right business model, that'll be quite valuable. So the other thing that's interesting in my mind about the American story on EVs is that America is the large, the only really large market that is not connected with China. We essentially buy no EVs from China with Polestar and a few others. And you see some Chinese EVs on the road when they come over from Mexico, but we don't have them. And so this and that's had that's probably had some political benefits in the United States is the kind of the that the threat to Detroit of the very inexpensive, very competitive Chinese shorter range EVs. That hasn't happened. Whereas that's happened all across Europe. That's happened across Latin America. But the pressure from direct competition with China in EVs has been muted almost completely in the North America, in the United States market. [00:51:12] Speaker 1: Yeah, I mean, you're right that the U.S. has sort of isolated itself from from that China, China EV market. But I wonder how long that'll hold for, because ultimately consumers are going to get a little bit annoyed if their prices are higher because of these tariffs. And and what didn't we have this before with Japan and their car manufacturers? And we came to a compromise, right, where we onshore the production and the manufacturing or but but we didn't exclude these vehicles. [00:51:40] David Victor: To me, what's interesting with with regard to China, but under the Trump administration, regard to seemingly everybody. But but China in particular, there is a bipartisan consensus of around the need for more trade restrictions. And one could see as a kind of free trade or some of the logic behind that. But it's been put on on steroids completely. So the the even though it's from you'd think this is kind of irrational from the perspective of people being concerned about affordability, that that actually, I think, has political much deeper political roots. And it's going to be there for a while. We're starting to see some of that happening with the Chinese battery manufacturers trying to do direct investments in the United States. You mentioned Ford CATL, a big project that Goshen and other Chinese manufacturer was trying to put together. The problem is the hostility to foreign ownership and foreign participation and the American content rules in all these federal policies that are trying to create onshoring. And so you could imagine designing something that that manages all that with Chinese investment or Korean investment and so on. But it's hard to make it happen in reality and be confident around that so that all of that is going to be a very powerful dampening force to to restrict the amount of the Chinese direct Chinese involvement in the American economy, even in direct investments or minority investments. And so they have all these kind of weird things where they're Chinese investments in tire companies that then result in the tires being even though you think they're European tires. In fact, they're Chinese tires by our rules and yada, yada, yada. So that's going to be really hard for China. It's possibly going to be hard also for Korean and Japanese investors. I'd mentioned a while ago that the Trump administration has shaken down a lot of money out of Korea and Japan for direct investment. It's not entirely clear that that even those investments are going to be able to move forward in the way expected because of this risk of running a foul of the American content rules. [00:53:32] Speaker 1: Maybe the way forward is, you know, we don't try and take a completely 100 percent view on this, but muddle through. And some supply chain on shoring, like if America could open itself up to more, you know, metal recycling, metal production, critical minerals. It's a vast continent with a vast amount of resources. It just stopped building things and kind of moved to a financialized economy, a service based economy. Maybe that is the way back is that the American content. But then we'll need to have environmentalists happy with a certain amount of disruption to mother nature. So there's going to be tensions. [00:54:11] David Victor: I think, I mean, I think you put your finger on it. When we take a step back, manufacturing is still 10 percent of the American economy, if that. All the meat, all the West, all the large market economies, the large Western economies have have de-skilled manufacturing and are doing services and things like that. That's kind of normal. That's exactly what you expect. So this kind of resurgence in manufacturing to some degree is swimming against the tide. And we'll swim against the tide. And some of the onshore is really working. It's pretty good politics. Some of it might be expensive. We'll do all of that. Will we do it around critical minerals? My own view is that most of the critical minerals debate is a fiction, that most supposedly critical minerals are not actually that critical. And we have very powerful incentives to reduce their consumption. Look at what's happened with cobalt, lithium. Lithium, the world is awash in lithium. There just hasn't been much of an incentive to find and produce lithium and or, or more importantly, to process the lithium because it's a nasty process that nobody wants to do. And for all the talk about the one, the one mineral that or material that worries me is copper, because under almost any scenario, we're going to be using a lot of copper. I don't know if you've seen a copper mine lately, but next time anyone flies into Salt Lake City, look west as you're on approach and you will see a giant copper mine. There is a reason we do not open more copper mines in, in the United States or indeed in the industrialized countries. And so I think most of that's just not going to happen. The politics are not going to make that feasible and their trade is really important. And if we'd have the right approach to trade on critical minerals, the way to solve the critical minerals problem is not to remove trade. It's to manage trade and reduce dependence on China, diversify suppliers, have some stockpiles in a few cases. I wrote a piece for the World Economic Forum a couple of years ago called "Lithium is not oil." Most of these critical minerals are actually not that scarce, they're not that hard to manage. But we've gotten ourselves wrapped around the axle on this and we've imagined a big problem that's actually a much easier problem to manage. [00:56:09] Speaker 1: And we have to close soon because we're running out of time. But, and also, why it's not oil is because most of these materials, especially copper, are recyclable, right? And so what you can do is, what you could do is allow the trade, allow the electrotech revolution in, and then invest in the recovery and recycling of those materials. So, you know, just to maybe wind here, but one of the people who typifies American innovation for me is a guy from Tesla, not Elon Musk, but J.B. Strobel. And J.B. Strobel was the guy who really cracked the lithium-ion supply chain and the charging infrastructure. And he's moved into battery recycling. And I think that's a smart move, right? So, yeah, maybe that's it. [00:56:54] David Victor: The nation is extremely good at producing talented, well-financed J.Bs and Elons and others. And when they have an incentive to deal with a lithium problem, a cobalt problem, or even a copper problem, they're going to find ways around it. So let those market forces work. Yeah, exactly. [00:57:13] Speaker 1: Okay. Listen, it's been quite a week. I know the analysis of this will continue on for many months. And we're going to get now into that really crucial debate about who's going to lead these parties going forward. Wide open races, lots to discuss. But thank you so much, David, for joining me here today. That was a fantastic conversation. I look forward to talking to you again soon. Pleasure as always. [00:57:36] David Victor: Thank you so much. [00:57:37] Speaker 1: So that was David Victor, Professor of Public Policy at the University of California, San Diego. My thanks to him for joining us. As always, we'll put links in the show notes to the resources that we mentioned during our conversation. I'd like to thank the Cleaning Up team and our Leadership Circle members who make this podcast possible. And thanks to you, the audience, for joining us. Please join us next week for another episode of Cleaning Up. [00:58:02] Speaker 3: Cleaning Up is proud to be supported by its leadership circle. 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