June 23—Just a few years ago, the U.S. was moving at a snail’s pace relative to Europe when it came to prioritizing the climate crisis. Today, we see fervent interest from policy and industrial standpoints, as well as mainstream society—while catastrophic weather events continue to exact heavy financial tolls. How is the world rehabbing from its addiction to fossil fuels and what are the likely global economic effects? Chief Investment Officer Tony Roth explores the weighty price tag with Gernot Wagner, NYU climate economics professor who pens Bloomberg’s Risky Climate and is co-author of Climate Shock.

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Gernot Wagner, Associated Clinical Professor, New York University, Wagner School of Public Service

Please listen to important disclosures at the end of the podcast

Wilmington Trust’s Capital Considerations with Tony Roth

Episode 35: The Economic Toll of Climate Change
Tony Roth, Chief Investment Officer, Wilmington Trust Investment Advisors, Inc.
Gernot Wagner, Associated Clinical Professor, New York University, Wagner School of Public Service

GERNOT WAGNER: Let’s—price each of these tons of CO2 to, frankly, basic economics, basic law of demand, price up, demand down. I’m still going to fly to see my parents. I’ll be happy to pay the extra couple hundred bucks that my ton of CO2 will have cost. Of course, statistically, on average, we will change our behavior. We’ll change our investment behavior. We’ll change technology to incorporate that cost of carbon.

TONY ROTH: That was Gernot Wagner, a climate economist, professor at NYU, and co-author of Climate Shock. Gernot is joining me today to discuss the economics of climate change, both what it costs to move to renewable energy and the potential costs if we don’t.

Welcome to Capital Considerations, the market and economic podcast that’s fully invested in your success. I’m your host, Tony Roth, chief investment officer of Wilmington Trust.

Climate change—it seems that all of a sudden in the last six months since the administration changed in Washington, there’s a renewed interest and renewed focus both from a climate standpoint and also from an industrial standpoint. And as investors, it’s something that we will absolutely have to take stock of.

So up until the last five years, it did seem like the U.S. was practically moving at a snail’s pace relative to many other areas of the world, particularly Europe, when it came to implementing and prioritizing climate crisis policy. And while we’re still playing catch-up, things have certainly changed, and we’re doing to discuss why they’ve changed, how they’ve changed, and how they’re going to continue to change.

To talk us through the rapidly changing world of climate policy and the cost of climate change is Gernot Wagner. Gernot is a climate economics professor at NYU, who pens Bloomberg’s Risky Climate column.

Gernot was also the founding executive director of Harvard’s Solar Geoengineering and Research Program and served as lead senior economist at Environmental Defense Fund. Gernot co-authored the book, Climate Shock, and his new book, Geoengineering: The Gamble, will be released this fall. Gernot, thank you so much for being here today.

GERNOT WAGNER: Thanks for having me.

TONY ROTH: Before we begin, I want to stress that Wilmington Trust is nonpartisan, and we take no political position one way or the other, and I think it’s important to note that because, interestingly, climate policy is a fairly political topic.

TONY ROTH: Our goal today is simply to explore where we’ve come from and where we’re going and not take a position on it. So, let’s just start by defining a couple of basic terms, Gernot. We use the terms climate change and global warming fairly interchangeably, but a layperson’s understanding of those words would certainly suggest that global warming refers to just that, the fact that the planet seems to be heating up for whatever reason that may be happening. And climate change seems to be the consequence of the fact that the world is warming, whether it be more storms, whether it be more droughts, whether it be other problems that we’re confronting. Do I have that right? Is that how you would lay out those terms?

GERNOT WAGNER: Yeah, it sounds about right. So global warming is global average warming, which matters of course. But frankly, it’s the extremes that often matter much, much more. It’s sort of these sorts of things that go well beyond just global average temperatures.

TONY ROTH: And it’s really pretty interesting from a scientific standpoint, being a layperson of course, because when we think about the idea of the planet warming up by a degree or two degrees Celsius, let’s say, it doesn’t seem like that dramatic a phenomenon. But when it translates into purely economic consequences as mediated through actual real changes in the climate, it’s pretty remarkably profound.

GERNOT WAGNER: Exactly right. And so there’s a few things here. So, nobody lives at the average, so if you literally average temperatures across the entire globe, well, you miss a lot. For example, the polar icecaps at the poles warm at around three times the global average, bad news for your oceanfront property. And then of course there’s all the extreme events—more intense hurricanes, more droughts, more floods on both ends, and for someone steeped in sort of the finance of it all, it’s the variance. It’s the variability that often matters much, much more than the small, incremental increases in global average temperatures, global average sea level and so on.

TONY ROTH: Okay, so for purposes of our conversation today, we’re going to make a couple of key assumptions. We’re going to assume that global warming is real, and we’re going to assume that global warming is, to a large degree, if not fully, but certainly to a large degree, the byproduct of human activity.

And, given those assumptions, why is it that there’s clearly a very significant upswelling of dialogue and focus on these phenomena in the last six or twelve months? Is it simply because there’s been a change in administration?

Is it because, in the wake of the pandemic, there’s almost a new understanding of the challenges we face on this planet and what nature can do to us? Is it because we’ve reached an inflection point and a point where, if we don’t do something quickly, we’ll be truly past the point of no return? Maybe it’s just the fact that we have a new generation that’s come of age, the millennials that really need to worry about a longer future than the rest of us. What’s driving all this intense focus?

GERNOT WAGNER: It’s all of the above. We do see more of these extreme weather phenomena hit home. This is no longer just oh yeah, they, over there, sometime in the future. No. Actually, we shut down Wall Street preemptively for 48 hours because of climate change because Superstorm Sandy was approaching New York. Hurricanes have happened before. Science can attribute more intense storms, hurricanes, more frequent ones, to CO2 emissions going into the atmosphere.

So, why is all of this suddenly so much more prominent? Of course, the change in administration has a lot to do with this in this country because suddenly we have an all-of-government approach how the Biden/Harris administration likes to call it to address climate change both the mitigation, the adaptation. And of course, we see a lot happening everywhere—industry, finance. Suddenly climate risk is front and center of many of the conversations.

TONY ROTH: Before we talk about what we’re going to do about it, can you dimension for us in any kind of quantitative way that’s relatable what the costs are? In other words, we know that there’s scientific and environmental cost, but in terms of industrial cost, what’s the best way to think of the cost? Is it sea-level change and the houses that we’re going to lose? Is it the cost of carbon recapture? How should we try to dimension or start quantifying for ourselves what the costs are of climate change?

GERNOT WAGNER: So, I guess in sort of broad terms, there is two types of costs here. One is the cost of unmitigated climate change. It’s the cost of, oh shoot. Stuff is hitting the fan. We need to adjust, adapt. So, look at Texas. So, Texas shuts down for days, for a week, because of extreme cold on the one hand, and it shuts down because of extreme heat. And when I say shut down, it’s basically ERCOT, the grid operator, telling Texans. We didn’t plan ahead here. We don’t have enough capacity. It will be very, very hot or very, very cold. So you, dear consumer, dear household, will be running your air conditioners or your heaters more than usual, so the extremes on both ends.

And we, as the grid operator, can’t keep up. So sorry you might be experiencing brownouts, blackouts, and so on. No, it’s not all linked to climate change directly. Blackouts/Brownouts have happened before. But these extremes are going up. That’s the direct cost of unmitigated climate change. And then of course, the flipside is, there are costs of acting. It’s a lot better to anticipate and to plan ahead.

But those are costs too. It’s the costs of climate policy, of the transition that somebody has to pay for. Yes, those are mostly investments and investments are typically considered to be good, but still, somebody has to pay for that. Now, investment crisis equals opportunity. On the other hand, somebody’s profits will go down because they will have to fortify their chemical plant in Corpus Christi, Texas, because of sea-level rise or higher storm surges and so on and so forth.

TONY ROTH: Gernot, is there any—do you have any shorthand way—do you scientist guys, academics that you can say, for example, okay, you’ve used carbon emission, and you’ve created for us a direct link between a certain amount, certain quantity of carbon emission, and a certain impact on the world. So, I would think that you could create some type of shorthand formula and say, okay, it costs X amount to recapture a certain amount of carbon.

The scientists estimate that we need to recapture this amount of carbon in order to reverse the impacts and, therefore, if we were to succeed as a civilization, this is the amount of money that need to be spent on that carbon capture in one way, shape, or form in order to reverse the impacts. Is there any kind of shorthand like that that you can tell us it’s this many trillions of dollars?

GERNOT WAGNER: You’ll be happy to hear that there is, yes. So, there’s a couple things here. So, one, when you say write shorthand for recapturing the CO2, so in many ways, yes, carbon capture will have to be part of the eventual solution. But frankly, there’s a lot of things we can do ahead of time. There is cutting CO2 emissions in the first place.

Carbon capture plays a role in that. Carbon capture and storage, which is literally adding that technology to the smokestack. And then, yes, you can suck CO2 out of thin air. It’s technologically possible. That sounds expensive. It also is. But to your question, so do us scientist types have sort of a shorthand for this. Yes, we do and especially the climate economists among us I included. It’s called the social cost of carbon. It’s—basically the nerdy way of putting it is it’s the present discounted value of the future stream of climate damages associated with that one extra ton of CO2 emissions emitted.

GERNOT WAGNER: Every one of these tons causes a couple hundred dollars-ish, plus/minus 50 to hundreds of dollars in damage over its lifetime in the atmosphere. There is a lot of assumptions that go into this calculation, but the number you care about, you ought to care about, is how much damage to the economy, to society, to ecosystems, to the world does that one extra ton of CO2 cause? And by extension of course, how much, how high should each of these tons emitted cost?

So, it’s a direct link here that says, hey, there is this damage that this ton causes, so no, we’re not trying to ban flights. We’re not trying to ban economic activities, certain economic activities here, not at all. What you need to do is to basically say, hey, there is this concept that says each ton of CO2 should cost a certain amount of money.

Let’s—by whichever way possible—price each of these tons of CO2 to, frankly, basic economics, basic law of demand, price up, demand down. It works every single time, to set the right incentives for you and me. I’m still going to fly to see my parents. I’ll be happy to pay the extra couple hundred bucks that my ton of CO2 will have cost. But of course, statistically, on average, we will change our behavior. We’ll change our investment behavior. We’ll change technology in order to internalize, incorporate that cost of carbon.

TONY ROTH: The economy is about $60 trillion every year, and what I’m thinking is can you say, okay, let’s say the will is present. What’s the check size we need to write? Is it 5 trillion? Is it 10 trillion? Is it 20 trillion in order to fix this problem? I know it’s not that simple, of course, but I’m trying to quantify for our audience how big is this expense in order to fix the problem?

And I think it’s a good segue to where I want to go with the conversation because, as I think about it, Gernot, there’s two different ways that we effectively fix this problem. One way is through policy, which is to say that governments force people to act differently, companies to act differently through rules and regulations and agreements and treaties like the Paris Climate Accord. And the second way is that probably as a byproduct of the first but not entirely is through innovation through capitalism. It actually becomes in people’s economic interest to use LED light bulbs instead of incandescent light bulbs because they’re cheaper.

GERNOT WAGNER: Yeah.

TONY ROTH: So, it’s a combination of those two things. Do I have the basic structure correct?

GERNOT WAGNER: So yes, yes, and yes. So, it’s essentially about pricing the negative externality, and, of course, it’s about subsidizing the good stuff, the clean, the lean, the mean new technologies, and frankly we are in this amazing world where the International Energy Agency, IEA, which, by the way, they aren’t a bunch of environmentalists. They were founded as sort of the counterweight to OPEC among the energy-consuming nations of the world. So, IEA basically comes out and says late last year that solar photovoltaic, solar panels, by now are the cheapest form of electricity in history. And, of course, they are. it depends on the cost of finance. It depends on cheap money basically to invest it because there’s a high upfront cost, and then you print money for the rest of the duration. But solar photovoltaic, solar panels, are really, really cheap. They cost about a tenth of what they did 10 years ago.

TONY ROTH: We look at the industry and we talk about these things about cost curves, and the cost curves are sort of parabolically down, and the same thing for wind, right?

GERNOT WAGNER: Exactly. So, wind has been cheaper for longer. Globally, we now produce more electricity still with wind than with solar, but solar is cheaper now. But, frankly, the trend is clear and how did we get there? Well, we got there by massive, massive subsidies.

On the demand side, frankly, we’ve had the conservative chancellor of Germany, Angela Merkel. She, over the last 15 years, has basically led this transformation of Europe’s industrial powerhouse to the tune of them getting half of its electricity from renewables, wind and solar by now.

Why? Well, heavy, heavy subsidies, subsidies on the demand side, fee and tariffs, that sort of stuff frankly, the proper reaction for the rest of us is to writing thank-you notes to German households and Chinese households because they are subsidizing the stuff for the rest of us, and it’s been very, very successful. We have climbed up the learning curve, slid down the cost curve in a dramatic fashion just in this past decade.

TONY ROTH: The subsidies are not of the form primarily that I’m going to buy a unit of solar power and it’s going to be subsidized by the German government. It’s effectively what we’re doing is we’re allowing the industry to grow, to reach scale. We’re allowing them to increase their research and development and get to a point where they can be competitive, more than competitive as you’re describing, with hydrocarbons.

Is it the case that they’re now born? The birthing, if you will, of these industries is complete and that they’re off to the races and that they’re going to eat the lunch of big oil? Or is more needed? What level of political will is needed in order to keep this or to accelerate this trend, or is it already organically going to take over just through the sheer competitive potential of these industries that have been created?

GERNOT WAGNER: So, the big question here is time, over the next decades, will we see this transition away from fossil energy toward renewables? Of course, yes. That’s happening automatically, organically, not much more needed. The problem is it’s still not happening fast enough on its own.

So, here’s sort of the real test. Are we shutting down coal, natural gas plants right now, plants that are still operating profitably in order to replace them with renewables? And the short answer is no. We are not building coal plants anymore, not in this country, not in Europe. All the additional electricity needed by now is basically being produced by renewables, which is great. But the real question of course is are we replacing the existing energy infrastructure? And well, the short answer is no, we won’t unless policy comes in because you’re not going to shut down your profitable coal plant unless somebody tells you to do that, or frankly if somebody pays you to do it.

TONY ROTH: But Gernot, it seems like there’s an inherent challenge here, which is that the science itself is imprecise, and it’s that imprecision, which I think enables society to just go on, if you will, with the inertia of the past. So, for example, you look at the southwest in the U.S., which has a record drought. You look at places like Lake Mead and Lake Powell, places where I went as a child. And the amount of water left in Lake Powell is less than a third of what it was when I was a child and now it’s producing less electricity from the dam.

It’s very imprecise to be able to say that if we accelerated the transition to renewables across the entire economy that we would be able to reverse the drought that the farmers are experiencing, that the recreational boaters are experiencing. And it’s that imprecision of the science that’s inherent in nature that makes this process require much more selflessness and vision perhaps than a lot of the other social problems that we confront.

GERNOT WAGNER: Okay, so why is climate change such a big problem? Because it’s more global, more long term, more irreversible, and yes, more uncertain than any public policy problem out there, at least in the combination of those four. So yes, this is a big, big problem.

So how can you tell when you succeed on the mitigation front? Well, frankly, you can only tell statistically on average, global average temperatures stay constant, that sort of thing. Extremes don’t go up, and that is incredibly difficult. But here’s the flipside, yes, there’s a lot of risk. Yes, there’s a lot of uncertainty. Well, we know what to do with risk. We manage it. The way we should really think about climate policy is as an insurance policy.

TONY ROTH: Right.

GERNOT WAGNER: The premium you pay is the couple hundred dollars per ton of CO2, which it doesn’t guarantee that there’s not going to be a bad outcome, but it clearly decreases the probability of that bad outcome.

TONY ROTH: Right. So, Gernot, I like the metaphor that you’re using around insurance. If we invest the trillions of dollars, do we know—what’s the likelihood that it’s not too late? In other words, how do we know that the insurance company is going to be solvent in this metaphor so that we have a good sense that if we do the right things now in the next years and decade or so, set ourselves on the right course, that it’s not too late? Can we know that?

GERNOT WAGNER: Not to be too much of a downer here, but no, we cannot know for sure, which once again makes this such a difficult societal problem. That said, can we be a lot surer? Yes, of course—a lot more sure, a lot more certain about the outcome. There’s statisticians out there, climate scientists who make a living out of these things. Every time some drought or flood happens, they publish a paper a couple weeks later that says—and we can—with 65% probability, we can say that this event was so extreme due to climate change.

That said, is it—should that tell us? Basically, so here’s the real question. Should it tell us something as sort of the rational or hopefully rational policy maker or for that matter, the CTO, the CFO of your company who is tasked with making rational decisions, yes, of course.

CFOs, CTOs don’t make the money they do because of their gut feeling most days of the week. They make it because they can figure out the statistics and they can figure out how, on average, your plant, your property near sea level, or your ski lift, your ski resort or whatever ought to react to the fact that climate change is real and, in fact, the climate is changing.

TONY ROTH: Right. So, let’s talk about the policy. We’ve established that we have a real consensus forming on the global stage it would appear with the U.S. now no longer the outlier that we had been over the last five years.

China is even, probably for very selfish economic reasons, coming around and talked about some pretty ambitious goals from a climate standpoint. So, let’s start with the Paris Climate Accord. What does the Paris Climate Accord not say? I think there’s a conference later this year somewhere in the UK, in Scotland.

GERNOT WAGNER: Glasgow, Scotland.

TONY ROTH: What do you want to see at the next round? What is imperative specifically at the international level that is accomplished that’s not in the Paris Climate Accord? What are the next steps?

GERNOT WAGNER: Paris Climate Agreement 2015 was basically a way to establish a global architecture, if you will, encourages individual countries to pledge their climate commitment and then have them review it at the international level. This is what I’m going to do, and dear world, dear global community, please hold me accountable. Well, as of a few weeks ago, Germany has this goal of being net-carbon neutral by 2045.

China has one that says 2060 as its goal. The U.S. doesn’t have a national overall goal, but at least Joe Biden’s campaign had this goal of net-carbon neutrality in the power sector by 2035. What we need is countries frankly putting forward more ambitious goals, impart much more ambitious goals of saying we will pledge too. We have a national law, or we have renewable portfolio standards. We have subsidies. We have carbon taxes, cap-and-trade system. You name it, we have these policies. And yeah, we are putting them through parliament right now, or we just passed them.

But it’s different by country. In Brazil it matters more to focus on deforestation or reducing deforestation than, frankly, almost anything else. In other countries like the UK, it matters to phase out coal and restructure the economy, the energy sector in a way to generate 100% of energy from renewables.

TONY ROTH: So, all of that is up for grabs if you will at the Glasgow. And how significant is Glasgow in your mind? Is this a major moment? How do you think about it?

GERNOT WAGNER: On the one hand I can sort of give you the answer that says Glasgow is a really big deal. Watch out for what happens there. We just have to pay attention.

On the other hand, I would say it’s much, much more important to look at what happens at the national level in national governments. So, President Xi of China coming out in September last year and saying we, as China, commit to becoming carbon neutral by 2060, or in India right now there’s this scalding debate of whether to be carbon neutral by 2047.

TONY ROTH: But Gernot, the reason that China is doing it is why? Is China saying 2060 and they’re coming out with a date because they want to be accepted on the world stage? Are they doing it because they think that it’s going to benefit them economically by developing those industries?

GERNOT WAGNER: This is the petrol state/electro state thing.

This is if you are producing two-thirds of all solar panels globally, if you are producing two-thirds of all lithium ion batteries globally, if you are producing 45% of all wind turbines manufactured globally as China is doing right now, then you a) want to create a domestic market for that, and b), you want to push everyone else to be more ambitious and buy more of your solar panels, lithium ion batteries, and wind turbines So, this is what I would call sort of a virtuous cycle here happening where of course it needs to be, it must be, it has to be, in that narrow economic self-interest of, frankly, everyone to want this transition to happen.

TONY ROTH: What should we be doing in the U.S. from the perspective of our narrow self-interest? Can our leader, our administration, can they commit us to this through the course of international agreement, or do we need congressional action to do whatever that is?

Okay, so what could happen, what should happen? Well, we need a clean electricity standard in the power sector at the federal level. We need a commitment to decrease emissions in the power sector at the very least, but of course nationwide for the entire economy. We need that sooner rather than later.

TONY ROTH: And so, we’ve seen with regard to climate that there’s been bills introduced in the House around electric vehicle credits, things of that nature. I’m not aware of anything around national electrical standards as it relates to carbon output, etc. So, it sounds like even with the Biden administration at the national level, they’re still pretty constrained on what they can realistically do.

GERNOT WAGNER: Oh absolutely. The clean electricity standard was, in fact, part of the original $2 trillion infrastructure proposal, and it depends on who you ask. It has either disappeared already completely. It is somewhere on life support. It is very much part of the conversations. It’s the sort of thing that is currently the most intense part of the debate.

TONY ROTH: And the irony—by the way, the irony of this is that we’re just hurting ourselves from a competitive standpoint because—

GERNOT WAGNER: Oh, of course.

TONY ROTH: The Republican Party is looking to protect the existing industry, but by doing so, we are disadvantaging on a fairly significant basis the ability of our country to develop the industries which will be at the forefront of cheap energy, not clean energy but cheap energy in 10 and 20 years from now. Do I have that right?

GERNOT WAGNER: So, the corporate example, we just had an activist hedge fund that owns 0.02% of Exxon stock convince the big ones—BlackRock et al.—to vote for three of their board members.

TONY ROTH: This is the Engine No. 1 case, right?

GERNOT WAGNER: Exactly, right, Engine No. 1, over the objection of management, and by the way, this is the big league. It was something like a $65 million proxy fight. Three out of twelve board members who are suddenly on—quote, unquote—the side of the energy transition here, and basically, just to be clear, this is not enviros now trying to go sweep in there and trying to liquidate Exxon and sort of shut it all down, of course not.

This goes to the sustainability, the core of the sustainability of the company.

TONY ROTH: Gernot, why is it that the executives are not on board with this proposal? I mean it seems as though it’s in the longer-term interest of the shareholders.

GERNOT WAGNER: So, I will not pretend to know what’s going through their minds. I can see how basically this is one of these—call it the generational shift. Call it sort of a fundamental shift in vision. So—and that’s basically this big question. Is Exxon an oil company? And maybe oil and gas, half oil, half gas. Or is it an energy company? Or, frankly, even solar panels fit into the picture.

TONY ROTH: I guess they have to figure out who they want to be when they grow up.

GERNOT WAGNER: And the big question is are they transforming themselves into an energy company writ large, or for that matter, a carbon company? Basically, they turn out to be pretty good at carbon management. Well, if you are really good at managing carbon writ large, why not turn your pipelines around and basically start capturing the stuff and become really, really good at carbon capture and storage, at air capture, literally sucking the stuff out of thin air?

TONY ROTH: How important is lobbying in this ecosystem? I know that there have been some proposals for more transparency around lobbying that have not been successful. Do you view that as something that’s a critical part of the longer-term solution?

GERNOT WAGNER: The very same day that Exxon had this board vote, Chevron had its board meeting. And, actually, there, sort of a vote that did pass, was for Chevron to develop a strategy basically, a strategy towards what’s Chevron’s role in a net-zero-carbon world? So just sort of the planning, basically. The vote that didn’t pass, it got 48% of the vote among its shareholders, but then didn’t pass was 100% transparency for its lobbying. So as every other company too, they put a tree on their annual report.

But then Chevron, like any other of these companies. Spend tens of millions of dollars lobbying against climate policy.

TONY ROTH: I’d be curious to understand whether it’s going to be mainstream, is the carbon capture. Do you think that is going to be really a mainstream part of the industrial ecosystem at some point?

GERNOT WAGNER: Much like the rest of the energy transition, the story around carbon capture is all about timing. Will it eventually be part of the solution? Yeah, of course. Because there are certain industrial processes, certain chemical processes where it’s frankly impossible, as far as we can tell right now, to get rid of CO2 completely. You can’t do certain things without actually generating CO2. Okay, so, yeah, carbon capture ought to play a role. Now, how big a role is anyone’s guess. So, you already see many of the oil majors already invest in it in a relatively small way, but still that’s ramping up quickly presumably. Meanwhile, a big, big question in all of this of course is who pays for it? Right now, we have this federal tax credit up to $50 per ton of CO2 captured and stored.

That’s not enough it turns out. It doesn’t compare favorably to the hundreds of dollars, so we need more, but of course we need also a higher carbon price. We can’t subsidize carbon capture to the tunes of hundreds of dollars while basically pricing carbon in the first place at only $50 or less than that.
TONY ROTH: Right, right.

GERNOT WAGNER: That doesn’t work.

TONY ROTH: Where do you see innovation leading to potential opportunity for capital deployment whether it be in the private space or the public space, whether it be in the U.S. or outside of the U.S. What areas of industry do you think are going to make the largest contributions going forward that aren’t fully developed yet?

GERNOT WAGNER: The EV sector is sort of—is an interesting one. Country after country, state after state, California came out, no more internal combustion engines after 2035 being sold in the state. And Germany, sort of other countries have the same—have similar goals. Frankly, what I would look at is the traditional car companies, the Volkswagens of the world, the Toyotas of the world, the Fords. The Ford F-150, the all-electric version of the most popular vehicle sold in this country.

How that will, frankly, change the industry fundamentally on the one hand, and so investment opportunities along those lines. So, if Ford comes out swinging, is it winning vis-à-vis General Motors and Chrysler and its direct competitors in the U.S.? And frankly, within each of these sectors there’s always going to be the leaders.

TONY ROTH: The innovators.

GERNOT WAGNER: I can easily imagine GM looking at the F-150 over at Ford and saying, wait. These guys came out swinging. Let’s see how that’s going to go. While at the same time you don’t see these being advertised as being driven as sort of the hey, I’m an environmentalist too, but basically because they’re fundamentally better products because it’s fundamentally better to drive the EV than the internal combustion engine.

TONY ROTH: Well, that’s right. They’re better for the environment, and they’re a little bit more expensive but not prohibitively more expensive. And I would imagine that other areas, batteries clearly, there’s going to continue to be a tremendous amount of innovation and opportunity in batteries, and it’s an area that we continue to be very focused on at Wilmington Trust.

Well, this has been a fascinating conversation. It’s one that we’d love to reprise at some point because it’s an area that’s critical to us, and it’s an area that’s evolving very quickly, and it’s an area, frankly, that has lots of very exciting potential for investors. So, let me summarize what I think are some key takeaways from today. First, I would start with the idea that there’s no question that climate policy has hit the mainstream, and it’s hit the mainstream on a global basis.

We don’t know yet whether or not there’s going to be significant industry-changing legislation that will be successful in the U.S., not just because we hope that the climate will benefit from that, the planet will benefit from it, but frankly domestic industry would benefit from it, which is, I think, an important acknowledgement if we think about not just the immediate benefit to shareholders. But over the longer term we need to build in this country very sustainable industries.

Second is that the price is right today given the investments that have been made globally for a much greater incorporation of renewable energy into the domestic economy here in the U.S. And in fact, there is a lot of ways a bias towards carbon, the thumb is on the scale towards carbon-based industries rather than even having a level playing field towards some of these renewables due to lobbying, due to inertia, status quo, etc. And that’s something that we need to keep an eye on and see how those dynamics play out as a society.

And then last, I would say is that it isn’t hard to recognize that those big companies in our economy, the Exxons and Chevrons and carbon-based companies if you will, have a very important role to play in the future. They’re going to be part of our ecosystem. They’re not going anywhere, but these big, massive companies, which have historically been hydrocarbon companies, will need to, at some point and in some way, pivot to be energy companies and will need to embrace renewables.

And it’s their ability to do that and to recognize that and to do it successfully, which will define the investment opportunity that’s associated with each one just as the same thing in the automobile industry is the case as Ford or GM moves more quickly and more effectively and executes better, they will become the, if you will, Tesla of the future. They will become the stocks that will be rewarded for their ability. There’s more than enough market share for more than one player in that space. So, a lot of these sort of old economy industrial companies are going to succeed or fail based on their ability to pivot, if you will, to the new approach. So, thank you again, for being here today, Gernot. It was really a pleasure to have you.

GERNOT WAGNER: Thanks Tony. That was a great summary, great to be here.

TONY ROTH: As always, thank you to our listeners for joining us. I encourage you to visit wilmingtontrust.com for a roundup of our investment and planning ideas. You can subscribe to Capital Considerations on Apple Podcast, Stitcher, Spotify, or your favorite podcast channel to ensure that you get updates on future episodes. Thank you again and thank you for listening.

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