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MARK WIEDMAN:  Welcome to The Bid podcast and our miniseries, “The real leaders of net zero.” I'm your host Mark Weidman. We're talking with CEOs about what they and their companies are doing to move the world to net zero. It's exciting stuff, so let's jump into our next episode. Our guest today is Jim Fitterling, CEO of Dow. Dow is a material sciences company, a global firm that many of you may know. You've probably seen their logos on the products you use every day, which you probably don't know is that they're a leader in decarbonizing the economy and their products and how they actually make them. We're going to talk about recycling, cracking, nuclear, carbon pricing, and plastics, both how they're made and how they're used and reused.

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MARK WIEDMAN:   Jim, welcome to The Bid.

JIM FITTERLING: Thanks, Mark. It's great to be with you. Thanks for having me.

MARK WIEDMAN: Let's start off with the basics. Tell us about Dow.

JIM FITTERLING: We're actually celebrating 125 years in business this year, so we've come a long way. We were founded in Midland, Michigan, which is where I am today. Today, Dow operates 104 manufacturing sites in 31 countries. We employ about 36,000 people worldwide. And we do business across really four big market segments, packaging for plastics, for consumer goods, and industrial goods; infrastructure; consumer markets; and the mobility market. Think about things that you might buy every day that would be made with our products into any grocery store. Products like you would use every day like your pillows and your mattress at home, automotive seating, et cetera.  We make products that make them more comfortable for you to use but also make them recyclable at end of life. Another big area would be insulation for homes and buildings to create more energy-efficient buildings and reduce carbon emissions, products that we make like films to cover solar panels that allow the solar panels to last longer. And then if you're in the area of mobility, transformation, or other alternative energy and mobility, a lot of content in electric vehicles, autonomous vehicles, and in any vehicle, including internal combustion engine to make them lightweight and to make them quieter. So those are the kind of technologies that we're into and the kind of end markets that we're into.

MARK WIEDMAN: So Jim, we're talking about the transition to a low-carbon economy. what does carbon, the climate, global warming-- what is any of that have to do with Dow?

JIM FITTERLING: The carbon economy has impacted Dow in a number of ways, I think, as a growth opportunity . The ability to have more energy efficiency to move to alternatives, et cetera creates market growth for us. On the other hand, to make any kind of materials, whether you're making cement or steel or polymers like we're making, or petrochemicals, or oil and gas, you need energy to make that happen. And so if you think about our carbon footprint and our scope 1 and 2 emissions, about half of that comes from generating power and steam, which are utilities to run our assets. And about half of it comes from using natural gas to fire furnaces, where we crack hydrocarbons. The two biggest molecules we make every day are ethylene and propylene. They're the two biggest molecules in the chemical industry. And they make all the plastics that you would use and also a lot of the other chemicals that you would use. And in order to do that, we have to have a lot of heat to make that happen. And direct firing natural gas is a good way to do it. So that's half of our CO2, and the other half was power and steam. So we've got a good plan, not only for market growth, but we've got a plan to basically retool our footprint from a power and steam standpoint and from an ethylene and propylene production standpoint to get our scope 1 and 2 emissions to zero by 2050.

MARK WIEDMAN: You've set a goal - zero by 2050. What are you aiming to achieve? And then critically, why?

JIM FITTERLING: Well, we achieved about a 15% scope 1 and 2 emission reduction between 2005 and 2020. We're going to do another 15% by 2030, so we will have reduced absolute emissions by 30% by 2030 and then the balance by 2050. Two reasons. One is the consumer demand. We see the driving force from the consumer to get the CO2 emissions down. They want to incorporate our benefit and our footprint into their product claims. Today, on a food package, you're more likely to see a recycle label. But I think in the future, you're going to see a product carbon footprint on that package. I think you'll see that this package used this much CO2 to make this package that the product is in. I think our bulk customers that are buying tons of material will want to see proof that what they're buying has a low or zero carbon footprint on it so they can make claims to their customers so that they can incorporate that into that their brand. And with about 70% of our materials going to consumer brand owners, that's where the pool is coming from to be able to make those claims because that's what the consumers are telling them that they want.

MARK WIEDMAN: You mentioned there were two things. The first was the consumer demand, but there was a second you had in mind.

JIM FITTERLING: I think the second one is-- you see policy change and regulatory change coming. So in Europe, for a number of years, we've been part of a voluntary emissions trading system that now is moving into a mandatory type system. So in the voluntary scheme, you had an emissions cap based on your footprint, and then it would reduce by two and a half percent per year. Under the mandatory scheme, that rate of decline is almost going to double. And what that is doing is driving up the cost or the price of CO2 per ton. So it's incentivizing industry to reduce its absolute CO2 emissions. Because if you don't and you don't keep up with that pace of change, you have to pay into the system. If you stay ahead of that curve, you can actually claim those credits and sell into the system. So that's a regime to actually drive industry to decarbonize. And we're going to see that in more places. There are about 30 to 40 countries today that have emission trading types of schemes in place.  The United States doesn't yet have one, but I think it's something that we need to see here to really incentivize the market and bring the capital markets into investments for decarbonization to really accelerate that. And the alternative would be another regulatory regime that could come in could be a tax. But if I were to be taxed on carbon, I'd just be paying that money into the government, and the government would be deciding what to do with it. And in that case, that's not going to create a return on investment for my shareholders. And so our view is we need to advocate more for a market-related system and a market-based price on carbon. Because that's what's going to bring literally trillions of available liquidity that's in the marketplace today to drive innovation and investment.

MARK WIEDMAN:  Jim, let's take it back to how your decarbonizing your actual operations. You had it in two parts. There's making stuff, and there's using energy. Can you give us some examples of how you're decarbonizing how you make stuff?

JIM FITTERLING:. On how we make stuff, you think about the most basic thing we do every day is make ethylene and propylene. And we take natural gas liquids like ethane and propane. These are cuts off of natural gas. We use that methane to fire a furnace in a hydrocarbons facility to basically take that ethane and propane and crack it and make ethylene and propylene. Now, when we make ethylene out of ethane, we make two by-products. We make methane and hydrogen. And so today, one of the ways we're decarbonizing is taking that by-product of methane and hydrogen, bringing it back through an autothermal reformer. An autothermal reformer basically converts methane and hydrogen into pure hydrogen. And then we will take that pure hydrogen and fire the cracker furnaces with that, replacing that methane. So we've got an emissions out of the cracker furnaces that is literally 5%, where today the emissions from firing natural gas are 100% of our CO2 footprint. We’ll eliminate 95% of the CO2 footprint by bringing that recycle methane and hydrogen around and making hydrogen as the fuel for the furnace. So it's a really elegant solution and one that's kind unique to our industry but one that is really attractive. And by going through that autothermal reformer, then I can more cost effectively scrub the CO2 out of the emissions and then sequester that. So hydrogen and carbon capture and sequestration are the two things that will drive the investment and really drive the acceleration of CO2 reduction in our scope 1 and 2.

The other area is power and steam for utilities. So we use a lot of electricity in our facilities, and we use a lot of steam. And we use kind of equal amounts of both. So for many years, one of the most efficient ways to generate that power and steam has been combined cycle gas turbines. We get good electricity output. We get good steam output. That helps us fire the facilities. Between now and 2050, almost all of those assets that we have at Dow will reach their end of life. So in every facility, as they reach end of life. we will replace them with the most effective technology that's low CO2. For example, today, we're repowering our site in Plaquemine, Louisiana. It'll be done in a couple of years. And when it's done, we will have lower cost power and steam utilities, and we will drop the CO2 footprint at that site by 350,000 tons. That's significant. That's about 15% of our 2030 target. And so we'll just go site by site around the world on our power and steam and invest in better technologies and lower-cost technologies. And also, get CO2 reductions that will help us stay ahead of that curve.

MARK WIEDMAN: Energy sources for your business. Today, you're heavily using gas. In the future, we talked about hydrogen. What do you see that mix looking like in 20 years?

JIM FITTERLING: Over time, we made the switch from coal to natural gas back in the '80s. We completed it. Now, we're looking at what's next after natural gas. And I think realistically, because we need 24/7 available dispatchable power, we run very large machines, rotating equipment that is very highly engineered and very expensive. And we can't afford even a millisecond interruption in power. It means we need really reliable supply. Wind and solar can provide an increment for us, but they can't provide that baseload. And so one of the things that we're looking at longer term, especially in the United States, is the idea of advanced nuclear. Advanced nuclear is new technology, relatively new. I say that the nuclear navy in the US has operated it for many years very safely. But it's a different fuel type. It's a different reactor design than these one gigawatt plants that you see at a utility building. These would be done on a smaller scale, maybe 60 megawatts to 200 megawatts. And something of that scale would be just the right size for a medium-sized manufacturing facility that I might have. So we're looking at a couple of facilities in the US. There might be good offtakers for an advanced nuclear project and talking to advanced nuclear companies about being an offtaker and do we have the right location and the right chemistry and the right other issues to really have a successful project there and how we could participate in that and proving out that technology.

MARK WIEDMAN: You've talked about the circular economy and the recycling of the plastics that you make. So now it's less about the manufacturing. It's the actual usage and ultimately the recycling. Talk about how that is part of your strategy.

JIM FITTERLING: Well, the biggest challenge that the world is facing today on plastics is this issue of plastic waste. And there are a lot of reasons for the waste issue. In the United States and Europe, you have pretty effective waste management systems, whether it's managed landfills here, or in Europe, a combination of both landfills as well as waste to energy and recycling drives. But in the rest of the world, especially in the developing world, there's really a lack of infrastructure, and it hasn't kept up with the growth. And so you've seen a lot of evidence that waste goes out into the environment. To stop that, we need to do a couple of things. We need to make sure that the waste is managed properly. And one of the most effective ways to do that is to be able to create a market for that waste material. It's estimated today that the value of all that waste plastic that goes into the environment is about $80 to $120 billion a year as a feedstock. So we can take that plastic back and convert it either through a mechanical or advanced recycling back into a useful product. It's that much material that we don't have to go take from virgin fossil fuel feedstocks. And our commitment is to try to get a million tons a year diverted from landfills or dumps and going back into the marketplace. And the other one is close the loop. And that's really about design.  So being able to make everything that we make fully recyclable. We're starting to see brand owners today demand more postconsumer recycled material in their products. And this is a big difference over the last 20 years. Today, most brand owners that we deal with have targets to have 30% of their packaging have postconsumer recycled content in it by 2030. In reality, today, the market can conly deliver about 2% of that number. And so there's a huge unmet demand and need out there, and there's a lot of money today moving toward both mechanical and advanced recycling. And also, automated and more sophisticated municipal recycling facilities so that we can create good pure waste streams which can become feedstock streams for our industry.

MARK WIEDMAN: Jim, let's talk a bit about you. You've worked in the chemical sector for your whole career. How has decarbonization started to come into that sector as part of your life in your career?

JIM FITTERLING: Well, if I go back to when I first joined Dow was in '84. At the time, Dow was retiring the last of it's coal-fired power plants and moving over to natural gas. And if you'll remember at the time, there was a big pressure on NOx and SOx, nitrous oxide and sulfur oxide. We were having issues with acid rain if you remember at the time. And through regulatory regimes, there was essentially caps put on the emissions. And that drove a lot of process technology to make that happen. That drove the industry away from carbon for power and steam to natural gas. And we really went-- and at least, in our case, we went and never looked back. We did some looks early days at hydrogen fuel cells for big industrial installations with GM. It didn't prove out to be the most effective technology, but sometimes, those ideas are 20 years ahead of their time. And here we are back to hydrogen again as a potential option. And the reason we're back, I think, right now is if you think about the way the capital markets work, for an industry like ours, where cost competitiveness is key. It really drives you to the lowest, both capital cost and operating cost solution, because these markets are price-sensitive. A difference of $100 or $200 a ton can mean you're out of a market. Now, you've got a different equation that we have to solve for. The world is saying, yeah, we want you to be low cost, but it needs to be the best combination of low cost and low or zero carbon emissions. And what that's going to mean for industry is the low-cost, low-carbon solution is going to be higher cost than just the low-cost solution we have today. And that's why policy is so important to get that right because with the right policy, with a market based price on carbon, with some R&D incentives around new technology to scrub out the CO2, with some infrastructure investment through deals like the Infrastructure Bill that was passed here, we can develop carbon capture hubs and hydrogen hubs. Those kind of policies all together will help us cover the cost so that that doesn't all have to get passed downstream to the consumer.

MARK WIEDMAN: Let's talk about the role of capital and investors in helping to fund the transition. And from your perspective as a CEO, start with simply, how is decarbonization part of your conversation with your investors?

JIM FITTERLING: In October, we had a big investor day at New York Stock Exchange, and we unveiled the game plan to get to zero scope 1 and 2 emissions by 2050. And as this year progresses, every time we update investors, we're going to give them in more detail behind what's in that. What we said to them was we're going to commit a billion dollars a year of CapEx between now and 2050 to making that reduction. That would be making sure that we're investing in technologies that are low cost, technologies that have a return on capital that meets their expectations and our expectations. And that we think by doing that, we can methodically site by site go around the world and take that power and steam and that hydrocarbons footprint to zero. It’s one of the most comprehensive plans that was laid out to investors, so they're still trying to digest it. But I think they appreciate that we believe it's possible if we have the right support to do it. If we have some help with a market-based price on carbon, it doesn't take a lot to move the needle. What we've seen in Europe is that once the price on carbon got to $60 a ton-- and now, it's operated between 60 and a little more than $100 a ton. And as Europe ratchets down the allowances, that price on carbon is going to move between $100 and $200 a ton.

That kind of a market price on carbon incentivizes me to invest capital faster to decarbonize because as I do that, I avoid large payments in the future. And this is what investors are concerned about. If you do nothing in the near term, what's the bill going to be for you in the long term? And what they're worried about if you do nothing is what's the tail risk on your business? How much is a tail risk on your business if you wait for everything to be put into place?

My view is in the near term, the demand for these products is going to exceed the supply. And for some period of time, there's probably going to be a premium that can be obtained through the sale of these products. It won't last forever because as technology moves and as other people come into the market, that will go away. But if we can move faster, we're going to attract a lot of capital into these markets. And the markets have proven time and time again that they're the best allocators of that capital. They will find the most effective technologies. They will make those investments. And the ones that aren't the winners, they will sort that out pretty quickly as well. This is why I think the market-based price on carbon is absolutely necessary.

MARK WIEDMAN: Jim, some of our investors, some of our clients look to divest out of what I'd call dirty, and you'll call hard to abate sectors. What do you say to them?

JIM FITTERLING: You have to look at the demand for the end products. And so the demand for the end products that we make today isn't going to go away. Plastics today have a CO2 footprint that is four to five times lower than any of their substitute materials. It's one of the reasons they've grown the fastest of any material class out there is because they're lighter cleaner, faster, and stronger than the next available material. And that's going to continue to be the case. And if we can take plastics to a zero carbon footprint, nothing's going to come close to it. So I would say, don't bail out before the cooking is done here. I think we're going to show the path on how to get there and still be the lowest cost and win that game. On the other hand, there's a big growing concern around the oil and gas industry today. I would say take it away from just the discussion around oil and gas and take it to energy, in general. This world has never used less of any energy source that it produces. Even though we're moving away from coal to natural gas, the world still uses more coal every year because many developing countries need coal to be able to electrify their country. If it's basic needs, they're trying to get themselves into middle class. Electrification is one of the things that has to happen. And that's the most efficient way they can do it. Natural gas would be the next most efficient. But in order to do that, many countries don't have natural gas, so they need to import LNG. That's a lot of capital. That's a lot of investment that has to happen, not easy for a developing country. And when you think about energy, obviously, our view is you need all of the above energy policy. Right now, you've got different factions trying to say, no more fossil fuels. And I'm like, fossil fuels isn't the problem here. The emissions are the problem. We want no more CO2 emissions. We want to get CO2 emissions to zero. We don't have to go determine that the answer is no more fossil fuels. Focus on the emissions and let the technologies give us the answer. And I think if we would get those two decoupled and get our policies around the emissions, we'd see a massive change in the CO2 footprint. Without doing much, we saw a huge change in CO2 footprint in this country, moving from coal to natural gas. The next move doesn't have the same kind of economic incentive that coal to natural gas had. We're going to have to create that incentive. And that's where a market price on carbon and some subsidy or some tax break for innovative technology investments is going to have to help.

MARK WIEDMAN: Jim, my last question-- what do you think is the single most important thing that needs to happen to get the world to net zero?

JIM FITTERLING: Focus on the CO2 emissions reduction. Open up the aperture to have an all of the above energy policy. Don't try to determine what the future energy mix is going to look like. It's a physics equation. The energy markets will get you to the right answer. And let the technologies that can reduce the CO2 emissions come to the forefront. And they will. Some of them are already here today and can be done in a scalable fashion like blue hydrogen and carbon capture. Let them roll. We'll make more progress in the next 10 years with those two technologies than just about anything else I can think of.

MARK WIEDMAN:  Jim Fitterling, CEO and chairman of Dow, thank you very much.

JIM FITTERLING: Thank you, Mark.