Alex Blumberg: Welcome to How to Save a Planet. I'm Alex Blumberg.
Ayana Elizabeth Johnson: And I'm Dr. Ayana Elizabeth Johnson. And this is the podcast where we talk about what we need to do to address the climate crisis, and how we're gonna make those things happen.
Ayana: So Alex, it's winter.
Ayana: This is a season I'm glad that still exists.
Ayana: And until a few weeks ago, I lived in an apartment where I couldn't really control the heat. Like, I had these radiators in the apartment, and they would go on whenever the landlady decided to turn on the heat. And so I couldn't really regulate the temperature, right? Like, I could sort of turn the radiators on and off, but I was on the top floor, and it was just really warm up there. And so I'd find myself sometimes opening the windows in the middle of winter, which is obviously extremely inefficient. [laughs]
Alex: But not uncommon, certainly in New York.
Ayana: I do not think I am the only person who has done this.
Alex: You are definitely not the only person who has done this. And a lot of that heat that’s just going to waste out those open windows is coming from fossil fuels.
Ayana: Oh, nearly all of it, right? These, like, giant furnaces in the basements of these buildings.
Alex: Yeah. And it's actually a huge problem.
Donnel Baird: We spend billions and billions of dollars heating up buildings in New York City just for the heat to float out of open windows.
Ayana: This is Donnel Baird. He's our guest on today's show, and he's thought a lot about this problem—the problem of buildings. Specifically, how much energy we waste in the way we heat and cool and use power in our buildings. And this is not just a problem of cost. This is a giant problem for global warming.
Alex: And to give you a sense of how big a problem, around 30 percent of US greenhouse gas emissions can be traced back to buildings. So that's if you include direct emissions, like the fossil fuels used to heat the buildings, plus all the indirect emissions like generating the power we use in those buildings to, you know, turn on the lights, run the air conditioner, etc.
Ayana: 30 percent is a lot.
Alex: For context, it's more than the entire transportation sector.
Alex: So every single internal combustion engine—car or truck—on the road today in America, burning gas and sending greenhouse gases out their tailpipes, think of all of them. Think of every rush hour in every city. They are causing less warming than our houses and offices and buildings.
Ayana: And that's the problem Donnel wants to solve. So we spoke with him about how he plans to get that done. And, you know, Alex, we talk to lots of different people on this show who are tackling climate solutions in all these different ways, from social campaigns to scientific breakthroughs, to political and policy solutions to businesses. And what's interesting about Donnel is that, in his search for solutions, he's covered a lot of ground. He started as a community organizer. He did a stint in politics, and eventually ended up running a tech startup called BlocPower, with backing from Silicon Valley.
Alex: And BlocPower, it has this very un-Silicon Valley-sounding mission: to renovate buildings, especially buildings in poor neighborhoods, and make them way more energy efficient. And in the process, to create a ton of good jobs for people in low-income communities of color.
Ayana: And Donnel says he can do all of that while making a ton of money. Super easy. No big deal.
Alex: Yeah. In fact, he says he needs to make a ton of money, otherwise it won't work.
Ayana: Turning all of these fossil-fueled and leaky buildings into green buildings is a really tough nut to crack at scale. And lots of people are working on different parts of this problem from different angles. There are policy incentives, engineering, financing, new technologies.
Alex: And Donnel is focused on one pretty big piece of this puzzle: how do you get the private sector to come in in a big way, and put up enough money to allow us to green all the buildings in the country at the speed we need that transition to happen.
Ayana: Essentially, we need to break buildings of their fossil fuel addictions ASAP.
Alex: And today we're gonna hear his story, how he got to where he is now by drawing on lessons from some unexpected sources.
Ayana: From the civil rights movement, Wall Street, the Obama administration. This is the story of how Donnel failed the first time he tried, and then how his thinking changed dramatically over the last decade.
Alex: That is all coming up after the break.
Ayana: So the interview we're bringing you today, Alex did without me.
Alex: [laughs] It wasn't—it wasn't on purpose. You know, sometimes you're busy.
Ayana: Sometimes I do things besides this podcast.
Ayana: So you won't hear my voice asking Donnel questions, but we'll be pausing the interview every once in a while to connect the dots.
Alex: And, you know, I was trying to channel you as I talked to Donnel. So hopefully I did an okay job.
Ayana: I will rate you at the end.
Alex: Okay, good.
Ayana: Without a curve.
Alex: Of course without a curve. So I started my conversation with Donnel by asking what made him want to address this issue of unsafe and inefficient buildings in the first place.
Alex: And Donnel told me that his concern about all this stuff, it's personal. And it starts all the way back in his childhood.
Donnel Baird: So I grew up fairly low income. My parents were immigrants. And they had to start over from scratch when they moved from South America. And we didn't have, like, heat in our building. We didn't have a functioning boiler heating system. And so we used to heat our apartment with the oven. We had a one bedroom apartment. It didn't have a bathroom inside of it. And the oven, obviously, was pretty dangerous if you have children around. Not only is there carbon monoxide but, of course, it's always hot and a kid can walk by, particularly in the dark and, you know, burn themselves pretty badly. So there was a strict set of protocols.
Donnel Baird: So pretty early on, I was introduced to this idea of, like, the relationship between energy and urban buildings and fossil fuel usage and health.
Alex: You said there was a system of protocols in the house? Was that around the oven? Like, your ...
Donnel Baird: Yeah, around the oven. One protocol was, even as young kids, we had to check the windows to make sure that they were open. My dad sometimes worked nights, my mom was cleaning bed pans, was in and out. So we were trained, like, okay, before you go to bed—cousins watching you, aunties watching you, whatever—make sure that the window’s open to release carbon monoxide. So we would do that check. So that was one protocol.
Donnel Baird: The other is, once we were all in the bedroom at night and the door was shut, we weren't allowed out, even to use the bathroom. Because again, it was down the hall, past the oven. And so our parents didn't want us as children walking around, and so they put a potty in the corner of the room for us to fulfill our ablutions in the potty.
Donnel Baird: And so, you know, that's the kind of thing that you don't think about when you have a live hot stove heating your apartment, but yeah, you don't want young kids walking around unsupervised. And so everybody's got to stay in the room, and do what you gotta do until the door opens in the morning.
Alex: How much of this were you aware of at the time you were growing up? Was it something your parents talked about? Like, oh crap. Like, this sucks we have to heat that our home with the stove. Or was it, like, something that you were aware of?
Donnel Baird: Yeah, it was, you know? And you know why? It's because back in my parents' country in Guyana, in South America, my dad was a mechanical engineer. He was trained here at Howard University, then went back home. And he actually managed—he was like an executive that managed the country's, like, bauxite mining industry. And so bauxite is this chemical that you mine, and it goes into aluminum, right?
Alex: Aluminum. Right.
Donnel Baird: So Reynolds Wrap was, like, their biggest customer, blah, blah, blah. And he managed that whole mining operation. And I think that anybody who, like, lives near mines there's, like, the toxicity that comes out of the mines and all of the different processes of the stuff that you pull out of the mines. And actually, my mom unfortunately had lost six pregnancies before me. So she'd had, like, six miscarriages.
Donnel Baird: And my parents, attributed her pregnancies and the difficulties with the toxic environment, like, around the mines in the industry that my dad was managing. And so for us, this thing of environmental impact, right, environmental health was pretty top-of-mind for my parents. And so it was something that we paid a lot of attention to as a family, how healthy or unhealthy our surroundings were.
Donnel Baird: And I think for a lot of poor people, because by definition if you're poor, like, you cannot afford to, like, move away from environmentally dangerous items. Like, for a lot of people, public health and environmental stuff is tied together. And so there's a link between poverty and health and environmental justice.
Alex: And you know, Ayana, this link between poverty and health and environmental justice, it's something we've talked about on the podcast before.
Alex: And Donnel said that the awareness, it just stayed with him from childhood.
Ayana: Yeah. As Donnel shared with you, his family eventually left Brooklyn for Atlanta where he attended this elite, mostly white private high school. And after that, he went on to college at Duke, and he says that as a high school and college student, he was really focused on racial equality. He worshiped the activists of the civil rights movement, in particular, the Student Nonviolent Coordinating Committee. And he wanted to bring opportunity back to neighborhoods like the one where he'd lived as a kid.
Alex: And then in college, a good friend made him take a class on climate change.
Ayana: We call that a great friend.
Alex: [laughs] And soon after that, he saw Al Gore's documentary, An Inconvenient Truth, and suddenly he says he started to see climate change as a crucial part of that same fight for justice.
Donnel Baird: I mean for me, that was when climate went to the very top of the list, right? Where it was like, I do want to create jobs and I do want to bring about racial justice as best I can, but none of it will matter, right? Like, all of it will burn unless we deal with climate.
Alex: And so he decided to devote his life to fixing these intersecting problems. After college, he got a job as a community organizer back in Brooklyn, in Brownsville.
Ayana: Which is a really tough neighborhood with super high unemployment.
Donnel Baird: I wanted to use community organizing tactics from the Black civil rights movement and apply them to creating jobs, and apply them to creating jobs that reduced fossil fuels.
Alex: He spent a couple years as an organizer trying to do just that with, admittedly he says, mixed results. And then he went to work for Barack Obama's first presidential campaign.
Donnel Baird: I joined the campaign and became a voter contact director for 18 months, and I went through eight states. And I got to see different parts of the country, including the fact that the patterns of, like, old, crappy heating systems in the buildings where I grew up with, same problem in Detroit. Same problem in Cleveland. Same problem in Greenwood, Mississippi. Same problem in Charlotte, North Carolina. I was able to see that that pattern wasn't just, like, my neighborhood where I grew up. It was, like, all of the cities, most of the buildings. Old antiquated fossil fuel systems.
Alex: When Obama was elected, Donnel ended up working on a program that was part of—you know, remember that big economic stimulus package right after the financial crisis?
Ayana: Yeah, of course.
Alex: Yeah. It was like billions and billions of dollars to all these different parts of the economy. And some of those billions were set aside to help make buildings greener and more energy efficient, which Donnel saw as a way to do exactly what he had been always hoping to do—to create jobs and reduce our reliance on fossil fuels.
Donnel Baird: I worked for a coalition of labor unions, construction unions, who had $90 billion of pension funds that they had specifically dedicated to co-invest with Obama and Biden's $7 billion of stimulus funding, which they wanted to invest in green buildings. And so my assignment was to figure out to take these tens of billion dollars of union pensions, invest them in green municipal bonds, then train and hire construction workers from the labor unions to do the work and go building to building, installing green energy equipment all over the country. And that was gonna reduce the unemployment rate from eight percent. And that was the plan.
Alex: That is a beautiful plan, by the way.
Donnel Baird: A beautiful plan.
Alex: Because this is the middle of, like, the great recession, right?
Donnel Baird: That's right.
Alex: Like, this is just sort of like, some of the hardest hit trades were, of course, construction trades. And so you've got, like, labor unions, government coming together. Well-funded. $7 billion?
Donnel Baird: $7 billion of government money and $90 billion of potential private sector capital. That's right.
Alex: Right. Yeah, I mean, did it work?
Donnel Baird: No. I mean, I'm a—I'm a hyper-capitalist tech executive, right? [laughs] So none of it worked! Not the community organizing stuff. In my view, not the Obama stuff. God bless him. I love him. Not the policy stuff, not the political organizing. None of it worked, and so that is why I'm a venture-backed technology executive, right?
Alex: [laughs] What happened?
Donnel Baird: I'm sure some of the people in the Obama policy shop will cringe when they hear this. But the problem was, it's actually ridiculously hard to green buildings, to go building-to-building and green buildings.
Alex: When was the moment of, like, this is never gonna work?
Donnel Baird: [laughs] You're really pulling it out of me here. Okay. All right. So Mayor Adrian Fenty was mayor of DC.
Donnel Baird: So we went to meet with Mayor Fenty and asked him to invest in training and hiring ex-offenders who lived in low-income DC neighborhoods in Anacostia, Southeast DC. We're gonna train and hire them to do green building upgrades of buildings across DC.
Alex: Got it.
Donnel Baird: And Mayor Adrian Fenty said, absolutely let's do it. Came out to a church. There were a thousand people in the audience. So we were thrilled. We went out and rapidly signed up 200 buildings to participate in this project. So every building's gonna get a budget of, like, $20,000-$25,000. We're gonna give, you know, $5,000-$10,000 to the construction crew to go in and install equipment. The rest of the money is to pay for the equipment that's being installed and for the removal of the old fossil fuel equipment, right?
Donnel Baird: And that's gonna be a loan to the building owner. And they're gonna be able to easily repay that loan because the clean energy equipment, it's new, it's more efficient, it's going to reduce their energy costs, the amount that they're sending to the utility bill every month. And so you're gonna take your savings from your utility bill and use it to repay your loan.
Alex: Got it.
Donnel Baird: That's how it's supposed to work.
Alex: And essentially, it's sort of like taking an inefficient hundred-year-old boiler or whatever's in the building and replacing it with a super efficient something else. A heat pump or something?
Donnel Baird: Exactly. Exactly.
Alex: Yeah. Yeah. And then putting in some ...
Donnel Baird: Nest thermostat and organic insulation. LED lights. You're just gonna consume a lot less energy. And I think today when we talk about it, we want to turn a building into a Tesla.
Donnel Baird: Like, Tesla's taken the gas-guzzling engine out of the auto. We want to take all that fossil fuel gas stuff out of the buildings. We want it to be all electric, smart, healthy, clean, green. That's what we're trying to do to the building. And we want to save you money while we're doing it, right? So that was the idea that we were pioneering at that time, but the costs were, like, double or triple what they needed to be.
Alex: And why was that?
Donnel Baird: Lots of the buildings had carbon monoxide, they had lead, they had asbestos. They had all of this stuff that made it really, really difficult in each and every building. So that was the first problem. And then the second giant problem was, the way this industry works is you have to pay an engineer before the project starts to come in and do an assessment. And so they’ll—there's this thing called a smoke pen, for example. So you hit a button and it releases a plume of smoke. And then the engineer will, like, watch which way the smoke blows in order to figure out where the draft is, right? And then you're supposed to make a recommendation: hey, I think this building needs new energy-efficiency equipment, because the smoke is blowing this way and that way.
Donnel Baird: And that assessment is expensive. So something like 60 percent of the buildings, instead of costing, like, $25,000 to install clean energy equipment, it ended up costing double. So now the math doesn't work, right?
Alex: Got it.
Ayana: This was key. The whole point, remember, was that bankers were supposed to loan building owners the money, and then the building owners were supposed to pay that money back over time. But the whole model only works if the payments that building owners are making on the loans are less than they’d have paid in energy costs. But there's a line where the cost to renovate the building is more expensive than the building’s existing energy bill. And Donnel just couldn't find a way to get it under that line.
Alex: When you added it all up—the cost of that assessment, the inevitable and expensive surprises that come when you start poking holes in old buildings—all of it added up to too much money per building. The costs of the renovation would overwhelm the savings.
Alex: So what happened to the program? You say it was not a success. Like, did the money get spent and spent poorly? Did it not get spent?
Donnel Baird: The money was spent. The vast majority of it was spent well. What we did was we created a bunch of jobs for people. We employed them, they did good work until the $6.5 billion ran out, right? But we were not then able to figure out how to take that experience and then bring in the $90 billion of private sector capital to expand the program and keep it going. Now you got to start to lay people off, because we haven't figured out how to leverage and bring in the $90 billion to keep stuff going across the country. That's the leap that we weren't able to make. Does that make sense?
Alex: Yeah. Yeah. You didn't make the leap from sort of like ...
Donnel Baird: Public subsidy to privately-financed industry.
Alex: How'd you feel about that at the time?
Donnel Baird: I was pretty demoralized. I mean, I think the promise of green jobs—you know, if this idea you can create economic opportunity in the communities that I come from that I care about, like, this is what I wanted to do. And so, yeah, it was heartbreaking that, you know, for—and I'm a community organizer. Like, I don't understand business at this time, right?
Donnel Baird: That there's, like, business reasons that the private sector can't figure out how to keep this going. And now we got to—we trained and hired people in DC, and we got to look them in the eye and lay some of them off because there's no more money from the stimulus. That was really difficult. And that did happen all over the country. And that was—that was demoralizing.
Alex: Yeah. So what did you decide to do next?
Donnel Baird: I decided to go to business school. You know, we'd run smack dab into this buzzsaw of these business problems of the unit economics on a building-by-building basis. I didn't even know what unit economics were. I didn't know what revenue was. I didn't know what stock was. And so I knew that if I wanted to pursue this dream that I'd had since college of we're gonna train and hire people of color to green their cities where they live and their buildings where their families live, I knew I was either going to have to go do something else or go to B-School.
Donnel Baird: So I went to B-School.
Alex: What that was like for Donnel—just how different business school was from anything you'd experienced before—and how it gave him the idea for a business model he thinks has a real shot at helping to save the planet. That's coming up after the break.
Ayana: Welcome back. Today we're speaking with Donnel Baird, the founder of the startup BlocPower, about his plan to green America's buildings, and how he had this unexpected conversion from community organizer to tech CEO, as he was trying to figure out how you could make heaps of profit by making buildings more efficient.
Alex: When we left off, Donnel had just started business school, which he really didn't like that much in the beginning.
Donnel Baird: First year was horrible.
Alex: [laughs] Wait, why do you say it was horrible?
Donnel Baird: [laughs] I remember we read a case study about this pharmaceutical company, Eli Lilly. And it was like, Eli Lilly has invented this drug, but they're charging people a lot of money for it who can't afford it. What should Eli Lilly do? And as a community organizer, I'm like, "Well, you should print the [bleep] drugs and give them to people so they don't die," right? [laughs] F! Fail! That's not the right answer, Alex, it turns out. That answer gets you ridiculed in the halls of an Ivy League business school, it turns out, Alex. And so ...
Alex: Wow! That’s not the right answer?
Donnel Baird: It's not the right answer. So for me, it was really jarring to have my frameworks, which were all about, you know, social equality and justice and the set of, like, values, be really challenged by this idea of profit. And, like, everything you do needs to have as its primary consideration, how are you going to generate net income from this transaction?
Donnel Baird: That was tough for me.
Alex: It's so funny because, you know, I started a business also, after essentially, you know, like, spending my whole life in non-profits. And thinking of profit as, like, dirty. Like, you know, oh, that's like, you know, all they care about is profit. And then realizing, like, yeah sure, I mean, you can take profit and just, like, invest it in Hummers and swimming pools and whatever, but also profit is what allows you to, like, invest in making more of the thing you want to do, or hiring more people, or doing all these other things. And so, like, profit itself, isn't a dirty word.
Donnel Baird: That's right.
Alex: And, like, actually it's how you use it that's important. So anyway, yeah. Yeah.
Donnel Baird: I mean, it was a long, difficult journey for me. I mean, I'm with you now, right? I mean, like, we have to make a ton of profit. We are trying to build a $10-billion company. And that is what is gonna allow us to train and hire all the people that we want to. And that is what is gonna allow us to reduce greenhouse gases and save the planet. Billions of dollars of profit. Period. End of story. That's the system we're in, that's the game we're playing, and we intend to excel at it.
Alex: Yeah. And you know what the other thing that I was just—like, if you boil down, like, what profit does, is it allows you to solve the problem that you had with the Obama program, which is sort of like once the money gone, it's over.
Donnel Baird: That's right.
Alex: And, like, what profit allows you to do is make something sustainable.
Donnel Baird: Keep it going. Make it sustainable. And you need the sustainability in order to get to scale, to reduce greenhouse gases and save the planet. Now that doesn't mean that profit is the end all be all, and that doesn't mean that profit of your shareholders—this idea from the 1970s, that's taken off as hyper-capitalism—that doesn't mean that that's the right idea either. But—so I do think that there's this opportunity to kind of, for our generation, to continue to rethink and reinvent capitalism and what its ultimate aims are, so that while we're making profit, we're thinking of these other kinds of considerations. And if we don't figure out how to incorporate climate into it, I mean, we're—you know, we're in real trouble.
Alex: So you go to business school. You've had these two experiences of sort of like trying to do this thing that were not sustainable. So what—how did you launch the latest venture? Talk to me about BlocPower. How did it come about? And, like, what was the goal in the very beginning?
Donnel Baird: Well, part of it—I mean, part of it for me was this experience of the Obama administration. And, you know, we had 60 votes in the Senate, we had the White House, we had the Congress. And were not able, or did not, pass comprehensive climate legislation. And so the part of me that still believed that there is gonna be a comprehensive policy solution to climate, that part of me died. [laughs] So what I was left with was capitalism.
Ayana: Okay, time out.
Ayana: I just absolutely need to interject here briefly, and say that while I totally feel what Donnel is saying, neither this podcast, nor I, have given up on policy as a key part of our climate solutions.
Alex: Right. Of course. And you are on record as saying policy is your love language.
Ayana: This is a fact.
Alex: And I don't even think that Donnel—he's not giving up on policy either, but he was saying, like, this big, bold government plan, like, he was watching that not happen, despite the fact that all three branches of government were in the hands of the party that claimed to want action on this thing.
Ayana: Yeah. I get that frustration, for sure.
Alex: And then he's like, well, I don't want to sit around and wait for that to happen. I'm gonna try to start on something my own. And I get that. Like, I think just as, like, there isn't really a world where government isn't part of the solution to climate change, there's also not a world where the private sector isn't a part of the solution too, right?
Ayana: Sure. And ideally, they work together, right? For example, cities like New York now have policies that require require building owners to improve efficiency and reduce emissions. And policies like that can actually play a big role in creating the markets for businesses like Donnel’s.
Alex: We’re at agree to agree!
Alex: Anyway, Donnel says that it was at business school that he came up with this idea of BlocPower.
Donnel Baird: We had the chairman of a solar company—I won't say which one—come into one of my B-School classes and talk to us about this beautiful business model that they had for expanding solar across America. And after class, I walked up and I said, "Look, man. You know, I was a community organizer. I got a bunch of churches and low-income apartment buildings back in Brownsville that I have close relationships with. I know the boilers are jacked up and I know they could use solar. Can you help me bring solar to these communities?" He was like, "Absolutely not. My lenders would kill me and my board would kill me. There's no way that this low-income community would qualify for the lending and financing criteria."
Donnel Baird: And so I knew that I was going to have to start my own organization if what I wanted to do was to bring solar back to Brownsville, right? My business school professors were very generous with me as I was working on this problem: how do we get solar back to Brownsville? And they're like the only way to do it is you're gonna have to invent a new financial product.
Alex: It's like—you know, like, how Isaac Newton, he was like, I know that there are laws of physics that I need to learn, but before I even learn the laws of physics, I have to invent calculus to explain it. [laughs] That's sort of like what it sounds like. You're just like, I know that—I know there's a business model, but even before I could even do the business model, I have to invent a—sort of a financial sector to finance it.
Donnel Baird: And that's why we had to build BlocPower.
Alex: And Donnel says that in business school, he got an introduction to an executive at a big bank who gave him an idea of what kind of financial product he could use.
Donnel Baird: And I was talking to him about, hey, I want to get solar panels into Brownsville. And he was like, "Look, man. I think that you should study the subprime mortgage crisis." And I was like, "What? You mean the thing that just blew up the global economy?" He's like, "Yeah, yeah, yeah. Forget about that part. Like, just forget about the global devastation and all that stuff. Put that to the side, put that on the shelf. If you look at the underlying structure of the financial tools that we use, I think you can apply it"—I probably shouldn't even be saying this—"I think you can apply it to bringing solar to Brownsville and these communities that you care about.
Alex: Okay. So Ayana?
Ayana: Yeah, Alex?
Alex: You know how, like, if you're, like, ever at a wedding and, like, your favorite song comes on and you're like, "Oh yes, this is my jam!"
Ayana: You’re like, "I have—I have just the dance moves for this moment." [laughs] I do know that feeling.
Alex: So this was sort of the equivalent. You know, when Donnel brought up this idea that he needed a new financial product, and that was based on this thing called a mortgage-backed security.
Ayana: You were like, "This is my time to shine. This is my jam."
Alex: That is my podcast equivalent of "Never Gonna Get It" by En Vogue. So ...
Ayana: [laughs] I want to get married now only so that you can dance to that song at my wedding.
Alex: [singing] Never gonna get it, never gonna get it.
Ayana: You’re hired.
Alex: I'm singing by myself here.
Alex: So anyway ...
Ayana: You were like, mortgage-backed securities? Let’s go.
Alex: Mortgage-backed securities, let's go. And the reason that this is my jam is because, like, I did a whole series of stories about this at Planet Money and This American Life.
Ayana: Back on the other podcast with the word "planet" in the title?
Alex: Exactly. The other one with "planet" in the title. And so I just want to talk about this idea that was proposed to Donnel, and how actually it's this really cool thing.
Ayana: Yeah, because when I was listening to this I was like, this seems like a terrible idea from what little I know about how that whole thing went down.
Alex: Right, exactly. Like, why would you take the financial instrument that nearly brought down the global economy and now use it for your startup?
Ayana: Yes. It begs exactly that question.
Alex: But so the thing about it is, like, the thing that brought down the global economy was this excess that was piled on top of this very, very basic thing that had existed for decades before and continues to exist to this day, and is the reason that, like, many, many people can get a mortgage and the mortgage is cheaper than it probably would otherwise be. And it's this thing called a mortgage-backed security. And, like, the basic idea of it is actually sort of genius. And I think it's really important to sort of understand it because, like, actually the application to what Donnel is trying to do is really, really interesting.
Ayana: All right. Break it down.
Alex: So here's the issue, right? Like, so if you think about a mortgage, it is a loan to a person the bank makes. The bank makes it not to be nice, but the bank makes it because when the person pays the bank back, they'll pay it back with interest. So the person gets a big pile of money to buy a house that they can pay back over time. The bank gets paid back over time, more than they originally loaned the person. So it's essentially a win-win.
Alex: The problem is people, like old buildings, are all different. And once you poke at them, they have all sorts of problems and sometimes they don't pay back their mortgages.
Alex: And so when it's just an individual bank making an individual loan, they have to be more careful and they have to charge more because they're not sure exactly are people gonna pay them back or not?
Alex: The mortgage-backed security was this solution to this problem. It allowed big, huge financial institutions that would never want to mess with, like, an individual person and their individual mortgage, and it allowed those big financial institutions to put their money and make it available to people who wanted mortgages. And the way it did that is it took all these individual mortgages and put them all together. And so instead of one person paying back, you had hundreds or 150 or thousands of people paying back their mortgage.
Alex: You had all this money from all these mortgage payments coming together. Because there were so many of them, it was a much safer investment for them. Because like ...
Ayana: So if, like, I default on my mortgage, it doesn't matter as much because I'm in, like, a big group of people who are mostly paying them back.
Alex: Yes, exactly. And so you would get paid.
Ayana: By the way, I'm a very safe investment, whoever is listening. Like, don't worry. I always pay my bills on time. [laughs]
Alex: [laughs] And so this invention of the mortgage-backed security, it changed the way everybody buys a house. And now a lot of people, almost everybody who gets a mortgage in America today is getting it through this structured instrument. And it's almost positive that your mortgage rate is lower than it otherwise would have been without the invention of this structured financing vehicle.
Ayana: It's basic—sounds like you're basically—it's a tool for spreading the risk and minimizing the risk to investors.
Alex: Exactly. And therefore, making investors more likely to make their money available to you if you want to buy a house.
Ayana: But where's the part where all this totally fell apart and the [bleep] hit the fan?
Alex: Well, so the part with that is that, like, people all started to do arcane financial wizardry on top of this basic idea. And they started including mortgages that shouldn't be included in the pools, and it sort of all went crazy. And regulations got lax, and there was greedy people who took advantage of the system. But, like, the basic underlying fact of it, it's like the banking sector went crazy, but we don't need to get rid of banks. The mortgage sector went crazy, but we don't need to get rid of this basic thing, the mortgage-backed security.
Ayana: Okay. So in the context of BlocPower, you've got millions of buildings in America, most of which need to be renovated. They need to be updated and retrofit to make them more energy efficient.
Alex: Yeah. Right.
Ayana: And so each building has all of these uniquenesses and weirdnesses, and you never know what's gonna happen when you start opening up walls. And if you can kind of smooth that risk over millions of buildings ...
Alex: Yeah, you can make it more attractive for institutions with tons of money to make these loans, right? It’s just like with the mortgage-backed security, how you packaged all these mortgages together to help spread the risk of individual defaults, with this new financial product that Donnel was helping develop, you can do the same thing for old buildings. Help spread the risk that any individual building will default.
Ayana: That actually makes sense to me. Thanks for putting on your Planet Money hat for a second there. I'm super glad it still fits. That's handy.
Alex: [laughs] Once you put the Planet Money hat on, you can never take it off.
Alex: And so when Donnel and I were talking about this I said to him, you're doing essentially the mortgage-backed security, but for renovations of old buildings.
Donnel Baird: We are doing exactly that for buildings in Brownsville, where I was a community organizer. Exactly that.
Alex: That is crazy. So you invented basically a financial product.
Donnel Baird: Yes.
Alex: That allows big money to come in and fund these equipment purchases that will make the buildings work better.
Donnel Baird: Yes.
Alex: And then it sounds like there was this other problem, which was sort of like, you know, how each building requires its own specialized inspection process, right?
Donnel Baird: Yes. We won this contract. It was $2 million in cash from the Obama administration, and we had to match $2 million of private sector capital in order to qualify to receive the money from the federal government. So we went out to Silicon Valley and we had to raise like a million bucks in order to qualify for this contract. And got introduced to Ben Horowitz at Andreessen Horowitz and Mitch Kapor at Kapor Capital.
Alex: Okay. And Andreesen Horowitz, just to like—that's one of the biggest venture capital firms, most storied, sort of very, very fancy VC firm out in California.
Donnel Baird: Yeah, yeah, yeah. They invested in, like, Facebook and Twitter and Airbnb and Lyft. And, you know, they’re big time. They're brilliant. And so we're sitting there looking at the business model and he goes, "Well, what are you gonna do about these guys, these inspectors, with the smoke signals?" And I go, "You know, I don't really know. I think we're just gonna have to pay them or start a nonprofit that's gonna do it at a lower cost, or whatever." And he goes, "I think you can build software to kind of simulate the work that these guys do. And if you can build that software, wouldn't that streamline this whole thing," right?
Donnel Baird: And Ben and Mitch, decided that they were gonna invest in BlocPower with this idea that we can build software to figure out how to reduce the costs of these inspections. And the way that we do that is by building a digital model of all of the buildings. So we've built it for 30,000 buildings across New York City. And we simulate the physics of different kinds of equipment inside that building, and come up with a range of scenarios of what's possible in terms of, if you invest, these are the expected financial returns, this is the expected greenhouse gas emissions. The third item output is the expected annual energy savings, right? And so we built this application that can simulate all of these outcomes.
Alex: Got it. And you did that just by sort of like the plans that are on file at the Department of Buildings? Is that, like, how you're able to do that?
Donnel Baird: Yeah, we aggregate all the files from the Department of Buildings. We aggregate all of the shapes of the buildings, the age of the buildings, the use cases, all the plumbing records. When a plumber comes out to renovate your home or replace your boiler, they fill out a permit that goes on file with the Department of Buildings. We scraped that, we dumped it in a data warehouse. Every time someone calls because their heat—their apartment's too hot or too cold in the winter, we have a list of all those complaints by address in New York City.
Alex: Oh my God!
Donnel Baird: So we got every record we could. And so we created this giant database of all the buildings in New York City, all of the owners, all of the people who live there and we run simulations on those buildings. I mean, it's—some of it's not that we're so brilliant, it's also that in 10 years there's been tremendous changes in software, right? The cost of cloud computing has collapsed.
Donnel Baird: The cost of machine learning and doing pattern recognition and statistical analysis of large data sets, all that stuff has collapsed. Like, any college kid coming out of computer science class is gonna do some basic machine learning these days, right? So these are basic tools now that were extraordinarily expensive 10 years ago, and there was not sufficient data to solve for it. And then last, the cost of low-cost sensors that can take temperature, humidity, pressure readings, air quality readings, you can just get some sensors from Home Depot for five bucks, or we actually send an electrician to people's houses. We put sensors where the smoke signals would go. And now we have granular, precise, 15-second interval data coming into our software platform to do our scenario analysis. So a lot of it is a collapse in the cost of different kinds of computing.
Donnel Baird: And that allows us to solve this in a different way than we could, you know, five years ago, much less, 10 years ago.
Alex: So Ayana, Donnel and BlocPower now think they have solved this problem, the one that stymied the Obama administration project he'd been working on.
Ayana: This is the problem of, how do you bring a big piles of investment money into the sector that's all about greening buildings?
Alex: Exactly, that problem. Donnel says that BlocPower has dropped the cost of figuring out what the building needs, and they've also dropped the cost of borrowing the money to provide what the buildings needs. And all that means that BlocPower can now make it so that buildings that previously could not afford to do these renovations can now afford to do them. And so one example of all of this in action that Donnel told me about, is at this big church just north of New York City.
Donnel Baird: So Father Gawain de Leeuw’s church at St. Bartholomew's Episcopal Church in White Plains is a great example. It’s an Episcopal church, giant sanctuary. It's got an office, a small office building adjacent to the church, and then next to that they have a small school. Then he has a rectory where the pastor himself lives. And so you got these four buildings. And they had an oil-burning boiler to heat the church, and they didn't have air conditioning in the summer, which was a huge problem for them because no bride is going to agree to get married in a church sanctuary that's super-duper hot and super-duper sweaty.
Alex: Right. [laughs] Uh huh.
Donnel Baird: So that's a big time problem if you're operating a church, right? It was a big time problem for him. And so we had worked with him a few years ago, and he's a member of the community organizing group that I used to work with. So he contacted us and said, "Yeah, my boiler is about to go out, we need to replace it. What do you guys recommend? They're telling me to put in a gas system." I said, "No, no, no, no, no. I think we can move you 100 percent off of fossil fuels, and we think we can finance it and make this work. We're gonna make this work for you." And so we decommissioned the old oil boiler so it's no longer the primary source of heat. We put in these fancy-pants systems from Japan called VRF heat pumps. And so, depending on the season, this one piece of technology can reverse itself and provide hot air or cold air. And it runs entirely off of electricity, and it uses less energy than your oil heating system. And so, no fossil fuels in all four buildings, and they've reduced greenhouse gas emissions by 70 percent.
Alex: Wow! How much did that project cost to do that for his church? How much did that cost total?
Donnel Baird: Cost about half a million dollars.
Alex: Okay. And ...
Donnel Baird: Up front.
Alex: That half a million dollars, he would not have been able to afford himself, right? So you're saying you can—because you have this, like, mortgage-backed security of, like, building renovation ...
Donnel Baird: Yep.
Alex: ... you have gotten banks to sort of invest, like, $5 million into this vehicle, basically. So you've got the money, so you can just, like, upfront the cost for Gawain, and then he has to pay you guys back a little bit of time each month, and then that's how your investors get paid back. But it's less than he would be paying normally under his old fossil fuel model.
Donnel Baird: Correct.
Donnel Baird: A hundred percent. Correct.
Alex: So he's paying less?.
Donnel Baird: He's paying less. He's saving money.
Alex: That's crazy.
Donnel Baird: That's where we think we gotta be in order to get the 30 percent of US greenhouse gas emissions down. We think, yes, we have to talk to people about saving the planet. Yes, we have to talk to people about we want their buildings to be healthy, so they're not breathing in toxins or carbon monoxide, but we also got to save people money. And after we green the building, the building is 11 percent more valuable and it's more profitable.
Alex: That's amazing.
Donnel Baird: Right? And this is the kind of thing that we can do in buildings now that we couldn't do three, four years ago. So now the question is, how do we scale this up? And that's why it's so important that we created this, you know, structured financing vehicle that allows institutional investors of different kinds. You know, now Goldman Sachs or JP Morgan or the New York state government, you know, can invest capital to do this, not just in Father Gawain’s building, but all the buildings in White Plains and all the buildings in the Bronx. And so ...
Alex: That's so interesting. And you're able to, like, do all this work, all this, like, sort of, like, very specialized work on this very specialized building, because you have the money to do that through this, like, financing vehicle that you created.
Donnel Baird: And we have the software. And that is what allows us to actually kind of put the whole thing together. So our belief is if you show up and you try to do the engineering without financing, it's not gonna work. If you show up and you try to do the financing without the appropriate engineering software, it's also not gonna work. You're not going to generate a high enough volume of projects to deploy enough capital to keep your bankers happy.
Alex: Gotcha. Gotcha.
Alex: So, Ayana?
Ayana: Yes, Alex?
Alex: That is the vision. That is the business model that is BlocPower.
Ayana: Sounds pretty good. So listeners might be wondering, like I certainly was, is it actually working? Where do things stand now?
Alex: So far, BlocPower has completed projects in about 1,000 buildings, most of them in New York City.
Ayana: And we should mention one of those projects in particular. Remember how Donnel said he started out trying to bring solar power to Brownsville, Brooklyn, where he'd been a community organizer? Well, they did it. BlocPower was part of a project installing solar panels on about 200 houses in Brownsville.
Alex: But, you know, reality check: 200 houses in Brownsville, even a thousand buildings that they've done, it's great. But there are tens of millions of buildings that exist in the United States.
Ayana: Yeah. There's a little bit more work to do.
Alex: Yes. And Donnel’s company, and others like it, would have to scale a lot to actually green all of those buildings. And Donnel says that right now, he hopes that BlocPower and the industry in general is at an inflection point, and BlocPower's goal is to accelerate their work and complete 600 to 700 projects next year, and multiples more in the years following.
Ayana: And to get that done will require something I hadn't really thought about before, but actually makes perfect sense. You have to hire a sales team to essentially go out door to door and explain this to individual building owners.
Alex: Sales teams are so important. [laughs]
Ayana: [laughs] You need those people who are like, hey, we can save you money by installing this fancy equipment and these new lights, and you should let us start poking around the basement and the attic of your buildings.
Alex: Right. It's one thing to create this good deal, but it's another to convince people that the good deal is real. And that's what you need your sales team for. And actually, Donnel's big dream this year is to convince an entire city to commit greening every single building in its limits.
Donnel Baird: Where we’re headed next and what we're working on, is we're trying to get the city of Philadelphia, the borough of the Bronx, or maybe Oakland or Milwaukee to commit to going a hundred percent green in the next 36 months.
Donnel Baird: Right? Like, let's quit futzing around. Like, let's green three or four American cities show everybody, show all the institutional investors, show the unions, show the government, show everybody how to do this, like, at scale, now that we think we've figured out how to do it. And then we have seven years left on a climate time frame for all the other cities across the country to use the case studies and duplicate it. So that's really what we're working on. So yeah, you know, we've got a couple of hundred projects going on, but I spend a lot of my time talking to chief sustainability officers and utility companies around who's gonna step up to the plate and let's, like, knock out a whole city.
Donnel Baird: Yep.
Donnel Baird: So that's what we're working on.
Alex: So Ayana, do you want to know what my final question to Donnel was?
Ayana: More about mortgage-backed securities? No. No, wait.
Alex: You know.
Ayana: Oh, how screwed are we?
Alex: The classic How to Save a Planet question. And Donnel, he took a long pause before he answered.
Alex: I have a question for you.
Donnel Baird: Yeah.
Alex: How—how screwed are we?
Donnel Baird: We're fairly screwed. We have a real authentic shot. It's not like a half-court shot. It's like a three-pointer down—it's a corner three, the shortest three pointer of all. It's not a free throw. It's not a layup, right? It's a three-pointer. Like, you need skill. You need focus to hit it. Like—but it's not—it's not gonna be luck. Like, it's within our grasp to do it. And to me, that means we are not screwed. This is within our grasp, if we can get the right people to the right tables to have the right conversations, and get them to focus on the right thing. And so I would—you know, I love Bill Gates and what he's doing. There's moonshots and that's great, but there's also the building-by-building slog of training and hiring an army of Americans. And I think we just got to refocus people on that opportunity.
Donnel Baird: While we're doing it, we'll install electric vehicle charging stations as we go building-to-buildings, so we can switch our transportation sector over. And so this is all doable. It's just a question of, does America and our business leaders and political leaders, do we have the will? And I think that we have it. We have it. So I think we're gonna do this. That is 100 percent my intention, and when I look my five-year-old in the face every night, like, that is my intention for him. Like, we're gonna deliver on this come hell or high water.
Alex: That was awesome. I really enjoyed talking to Donnel. I hope you enjoyed it as well.
Ayana: I enjoyed listening to you talk to Donnel and then interjecting.
Alex: [laughs] Interjecting is one of life's unsung pleasures.
Ayana: It is something I should probably add to my LinkedIn skills.
Alex: [laughs] Should we do our calls to action?
Ayana: Yeah, there's there's work to be done. So if you want to learn more about what BlocPower is doing, whether or not it might be a good fit for your building, they have a survey tool, and you can go to the website and check it out.
Alex: Yeah. And maybe if you live in a big apartment building, you can get your building manager to fill it out. That's what I'm planning on doing. I live in a big multi-unit condo building, and right next to the front door it says our building's energy efficiency rating is a D. The one above an F.
Ayana: That is not a good grade.
Alex: Not a good grade. So I'm gonna send the BlocPower link to our building manager and see what comes of that.
Ayana: And if you're wondering what kind of a grade your building might have—hopefully it's better than a D—we have a more general resource for you to get an energy audit for your home, to do some of that audit yourself even. The Federal Department of Energy has a website with a whole bunch of advice, and we'll link to that in the show notes, too.
Alex: And one more thing: on the policy front, you know, building efficiency is a place where local towns and cities actually have a lot of control.
Ayana: A lot, yeah.
Alex: And so, for example, in New York City, they are now grading buildings sort of the same way where they give grades to restaurants, they are now grading buildings on their energy efficiency. Other cities, towns, municipalities can do the same thing. And that's a really big part of this policy/private sector puzzle we were talking about earlier. And there is a way for you to get involved in your town doing that.
Ayana: Yeah. You can throw your taxpayer and citizen weight behind building-efficiency standards where you live. And we'll include some examples of this in our newsletter.
Alex: Yeah, some links for you to follow to find out how to do that.
Ayana: And finally, we wanted to add another note that's not directly related to green buildings, but it's getting cold and the holidays are coming up, and we know a lot of people around the US and the world are struggling with lost jobs, lost income, struggling even to hang on to their homes because of the pandemic. So if you can, we want to suggest donating to your local food pantry, or to organizations that cover heating, utility bills or even rent for families at this time of year. We'll also put some links about that in our show notes.
Alex: Yeah. Let's all try to take care of each other over the holidays.
Ayana: And we'll be back next week.
Alex: But first ...
Ayana: But first ...
Alex: The credits.
Ayana: Gotta give credit where it's due.
Alex: How to Save a Planet is a Spotify original podcast and a Gimlet production.
Ayana: You can follow us @how2saveaplanet on Twitter and Instagram, and email us at firstname.lastname@example.org.
Alex: How to Save a Planet is hosted by you, Dr. Ayana Elizabeth Johnson, and me, Alex Blumberg.
Ayana: Our reporters and producers are Rachel Waldholz, Kendra Pierre-Louis, Anna Ladd and Felix Poon. Our senior producer is Lauren Silverman. Our editor is Caitlin Kenney.
Alex: Sound design, mixing and original music by Emma Munger. Additional music by Catherine Anderson and Bobby Lord. Our fact checker this episode is Claudia Geib.
Ayana: And a very special thanks to Alexis Cureton and Kimi Narita of the NRDC—hello—and to David Rubinstein. We’ll see you next week.