How RMI Collaborates with Companies to Accelerate the Energy Transition Flashcards
Founded in 1982 as Rocky Mountain Institute, RMI is an independent, non-partisan, nonprofit that transforms global energy systems through market-driven solutions to align with a 1.5°C future and secure a clean, prosperous, zero-carbon future for all. We work in the world’s most critical geographies and engage businesses, policymakers, communities, and nongovernmental organizations to identify and scale energy system interventions that will cut greenhouse gas emissions at least 50 percent by 2030. Since our co-founding by Amory Lovins, RMI’s chairman emeritus, we have grown to over 600 experts working on four continents. Lovins’ four grandparents emigrated to the United States from small villages lying between Kyiv and Odesa in Ukraine in the early 20th century. Most of his remaining family are believed to have been killed by German Nazis in the 1941 Tarashcha massacre.
Jules Kortnenhorst, CEO of RMI, shares how RMI works with companies in the transportation, cement, and steel sectors to encourage the rapid energy transition, necessary to mitigate climate change. He also talks about RMI’s global partnerships, innovative energy programs, and accelerators—and describes how his experience in the HBS MBA program shaped his career journey.
July 2022
10/03/24
RMI is now an organization of 500 people around the world. We were started more than 40 years ago by Amory Lovins, a student at Harvard who saw the need for and the opportunity of the energy transition. And he created the institute in the roaring Fork Valley near Aspen because he felt that that place would be inspiring for thinking about sustainability.
Over the last 40 years, we’ve become the leading civil society organization in promoting the energy transition in working with businesses and industries to accelerate the transition to a zero carbon future. We are facing a planetary emergency, and just thinking about the problem is no longer sufficient. We have to really, really focus our efforts on driving impact at scale, so that’s what we do.
We explicitly decided from the beginning our focus was going to be on mitigation. As you may know, 70% of greenhouse gas emissions are part of the energy economy. The remainder–30%–is largely from land use, agriculture, forestry, a very different field of work, so we decided to remain focused on the energy emissions. We cover the full spectrum of the energy system and its emissions. And we do that initially in the United States, but now in China, in India, in Africa, Southeast Asia, small island states, pretty much around the world.
When we say energy systems, we’re thinking electricity generation and transportation. Those are two very important ones, but they’re not the only ones because if you think about where we use energy, we use it, across the economy. There is a very significant part of energy use and emissions associated with our built environment. About 40% of energy is used in buildings, so that’s the demand side of some of that power that is being generated, but it is also the emissions associated with heating and cooling. And the last sector is industry. And in fact, much of the decarbonization of industry is still earlier on, it is more complex, it is more challenging. Sometimes we refer to those sectors as the hard to abate sectors, think about steel and petrochemicals and cement, food and agricultural products.
Originally, we were significantly involved in the scale up of distributed renewables, wind and solar in particular. And these technologies have gone through an amazing learning curve over the last 20-30 years. pretty much everywhere around the world now, it is cheaper to produce electricity from solar or wind than any other form of power generation.
But the fact that it is cheaper to shut down an existing coal plant and replace it with wind and solar doesn’t mean that that automatically happens because there is a political economy around that. There are stakeholders, there are transaction costs, there’s some misinformation. At the moment, we are advising a number of governments in Southeast Asia, in Africa on precisely this transition, and it is because coal represents about 40% of total emissions.
The second thing is that we’ve always traditionally thought about the supply of electricity having to follow demands, but what if we could invert that logic? What if we could have demand follow supply? Your freezer, in particular, doesn’t have to be on all the time. In fact, the compressor only kicks in every 15 minutes or so. At the very peak of electricity, use at 6:00 when everybody comes home, turns on the television, you could slow down the cooling of your freezer for a moment. That principle, called demand response, is being deployed increasingly both in households and in industry. For example, Google launched a product called Nest Renew, and we helped them think this through. Nest Renew basically tweaks the use of your air conditioner dependent on the availability of green electricity without you ever noticing that the temperature in your house might change by half a degree.
And important to note that electricity, by its nature, is a regulated market. And regulators can have a big, big role in how to shape an electricity system that is low carbon, so advising regulators has been an important part of our work. We have an ecosystem of cleantech incubation and acceleration where we work with some of the early stage battery storage companies. But we’ve also advised utilities as they think about their so-called integrated resource plans, the plan that they use to lay out the future of their system.
Let’s pivot and talk about transportation. I’m a happy Tesla driver. And for those of you who already drive electric vehicle, you’ll have discovered that it is simply a better car. But here’s the exciting thing: It’s not only a better car, soon it will also be a cheaper car. The learning rate of battery technology is an order of magnitude 22%, meaning that every time the globally installed capacity doubles, the price comes down by 22%. Now, in the short run, the price of nickel has gone through the roof because of the horrible war in Ukraine, but in the long run, this reduction of battery cost will be a very key determinant in the shift to electric mobility. It’s a better car, it’s going to be cheaper. You’re not dependent on volatility of gas for your fuel, it’s far less maintenance. It all around makes a lot of sense to switch our mobility to electricity.
Automotive companies have now seen this. One after another, the largest automotive companies in the world have decided to pivot wholesale from internal combustion engine cars to EVs, because they recognize that keeping two platforms side by side is just way too expensive. But, like in the electricity, in mobility, there are transaction costs and barriers to uptake and so on. And we all know about range anxiety and the infrastructure.
We need to massively scale up the charging infrastructure, particularly in this country. Europe is ahead on this front, China is ahead on this front. In fact, in Europe and in China, EVs now make up 20% of new vehicles being sold. Some of the work that we do is to help the scale up of the charging infrastructure, working with the government and with states to roll out that infrastructure, but also to convince fleet owners about the massive benefits they already have today from lower total cost of ownership of electric vehicles.
Our work India with the government of India for the last five years has very much focused on helping India scale up electric vehicle penetration, manufacturing now, battery manufacturing. And in India, that started with two wheelers and three wheelers and mini buses, not with expensive cars like mine. Out of that came an effort with distribution companies and eCommerce companies in India to deliver the last mile delivery of eCommerce products with electric vehicles, electric scooters, electric rickshaws. And a global campaign is emerging called Shunya, the Hindi word for zero where companies like Amazon and FedEx and UPS are committing to deliver eCommerce products with zero emissions. That’s a very cool effort that we’ve been working on.
It initially started because our founding father, Amory Lovins, made a trip to India, met with a bunch of ministers, and they asked for our help. if you start to think about 1.1 billion Indians who understandably want to develop their economy, grow their per capita income, it made sense for us to allocate the resources so we sat down with NITI Aayog, the government think tank that supports the prime minister’s office, and laid out a plan in terms of the collaboration and who would we invite in? We are a big believer in open source solutions and open collaboration.
When we think about the process technologies, the difficult to abate sectors, you have a program called the Mission Possible Partnership, which is a clever name.That’s covering a variety of technologies.
Let me start by acknowledging the fact that the Mission Possible Partnership, which indeed resulted from a report called Mission Possible: We Can Do This is a collaborative effort for organizations. It is beyond RMI. The Energy Transitions Commission, a platform that was stood up by a consulting firm in our arena, Systemic. It’s also the We Mean Business Coalition, which is a coalition of civil society organizations working with businesses, and finally the World Economic Forum, the hosts of Davos. Between the four of us, we’ve created this collaborative effort to address emissions in steel and in cement, in shipping and aviation, in petrochemicals. The mindset has dramatically shifted over the last 3-4 years. In all of these sectors, there’s been a realization that the goal of society to achieve net zero emissions by the middle of this century means that they also have to decarbonize.
Maersk, the shipping company, about 5 years ago stood up an effort called the Global Maritime Forum to bring together the shipping companies that were committed to address this issue. And they laid out a plan in collaboration with the International Maritime Organization to say, “We can imagine that our ships, in due course, can sail on green ammonia or green methanol made with green hydrogen.” That was a bold commitment 5 years ago, but the commitment alone was not going to get the job done. We needed to convince banks to finance the investment in those green methanol ships. We needed the fuel suppliers to create the flow of green methanol, green ammonia; that’s only just starting to happen. We needed ports to start thinking about converting their infrastructure, and then we needed customers of shipping companies to say, “Yes, we’re willing to pay extra for the cost associated with green shipping.”
In the end product of shipping a pair of jeans from Asia to the United States, the difference between green ammonia or green methanol versus marine diesel is one penny. And I think that most consumers would be willing to spend one penny more for their jeans if that would mean that they were shipped to the United States with zero carbon.
Similarly in steel, the calculation right now is that green steel, steel that is made with hydrogen as the reduction agent rather than coal as the reduction agent, that that steel is about 20-30% more expensive in the long run; right now it’s even more.
How do you convince anybody to pay 20% more for their steel? No procurement is going to sign up for that. But Volvo and Mercedes realized that a Volvo passenger car, a Mercedes passenger car will only be about 100 euros more expensive if it is made with green steel. Those two companies have made early commitments to steel companies like SSAB and ASOLA Metal to buy green steel at a premium price so that they can have the marketing benefit of saying, “Our electric vehicles are not just electric, but they’re also produced with green steel,” which is the major component of greenhouse gas emissions in the production of cars.
We see that industry collaboration is absolutely critical across these value chains, suppliers, industry participants, their customers, and their banks and their financiers coming together. In Mission Possible Partnership, we are bringing these cross-cutting collaborations together in all of the hard to abate sectors. It is really exciting to see the commitment of these companies to move in the right direction.
One of the things that’s so interesting to me about that story is this pre-commitment years ahead of time to procure, at a price premium, a decarbonized product. I think it is a real breakthrough because if you think about a transition in the electricity arena, it was not until wind and solar power became cheaper that companies like Google and Microsoft and Amazon and others started to buy green electricity at scale. As a result, the shift from fossil fuel power generation to renewables has taken 30-40 years. We don’t have 30-40 years. We have to be net zero by the middle of this century. We have to eliminate 50% of greenhouse gas emissions by the end of this decade.
There are some other programs that I know RMI is deeply involved in. I wonder if you can comment on Third Derivative. Some of you may remember the clean tech 1.0 venture capital wave of about 10 years ago. A lot of people lost a lot of money thinking that venture capital in the clean tech arena was going to be more or less the same as social media. It isn’t. They are difficult technologies. We’ve brought together about a dozen corporates, more than 75 startups and a number of venture capital firms to help push early-stage companies through the various valleys of death of clean tech incubation much faster. And Third Derivative is now seen as having some of the best clean tech pipeline and great investment opportunities. So far, our 75 companies have raised close to $400 million in venture capital money in the last year and a half, so it’s building quite a bit of momentum.
Most of the activities that RMI is engaging in could equally be engaged upon by a consultancy model. Can you say a little bit, why is RMI a non-profit think tank instead of a for-profit consultancy?
We are probably one of the more entrepreneurial business-minded nonprofits in the world. In fact, we’ve organized ourselves like a consulting firm as a partnership. And if you look around the table with my 24 senior partners, I would say that 20 of them have a background in the private sector, be it at consulting firms or big tech companies or, of course, in the energy sector.
I think we’re seeing a massive realignment in the major consulting firms. I think a realization has emerged also there as it has in every boardroom that this is a planetary emergency but it is also a great business opportunity. These consulting firms are left, right and center standing up their internal climate alignment practice or their sustainability practice. They are growing their resources as quickly as they can, recruiting people out of business school but also from RMI. One of the major consulting firms, I think of regular attendance here on campus, comes knocking on our door about a year ago. “How do you acquire a nonprofit? Would you guys be for sale?” And it was a funny conversation to explain to them that we get out of bed to save the planet rather than to make money.
