WSJ ECO:NOMICS ROUNDUP

Following ECO:nomics, its 2nd annual conference about environmental business matters (ad slogan: “No PowerPoint. No pontificating. No Hot Air.”), the Wall Street Journal published highlights of the proceedings.

There was a remarkable array of powerful and controversial people. A controversial confrontation came when Al Gore was challenged to a debate by Bjorn Lomborg, a former climate change denier who was attempting to use Vice President Gore’s celebrity to leverage his own C-status and get a bigger stage to make his current bogus claim.

Lomborg: “It seems to me that you are probably the most well-known person arguing that we should be spending a large sum of our money and we should be spending most of our concern on focusing on cutting carbon emissions, and cutting very, very soon. And I would argue that…both scientifically and economically, it's not a very good way to spend our money.”

Former Vice President Gore, a Nobel laureate for his work on climate change, handled Lomborg eloquently.

Gore: “Look, I think that I want to be polite to you. But the scientific community has gone through this chapter and verse. We have long since passed the time when we as a civilization, let alone we as the United States of America, should pretend that this is an on-the-one-hand/on-the-other-hand kind of situation…You know, the tobacco industry for many years after the surgeon general's report collected the epidemiological evidence that was already very, very damning. They had strategic exercises with the PR experts to try to divert people down into the details of this and that. And they delayed public-health action for 40 years. And millions and millions of people died as a result. The stakes this time are so high…It’s not a matter of theory or conjecture…”

From WSJ

Lomborg was not the only prominent climate change denier at the conference. Vaclav Klaus, President of the Czech Republic, has become a prominent denier because of the coincidence that the largely ceremonial EU Presidency rotated to the Czech Republic in January, giving Mr. Klaus a pulpit.

An economist who taught finance at the Prague School of Economics, Klaus played a heroic role in the Czech Republic's victorious revolution against Soviet communism. His disdain for climate change is not the result of any expertise in the science but a contempt for government interventions in the marketplace which, of course, violate the economist’s stalwart – if rather idealogical – belief in the omnipotence of the market’s invisible hand.

Klaus: “As a person who spent almost 50 years of his life in a communist country, I know how crazy it is to introduce schemes like the cap and trade and similar ideas, how devastating and damaging for the economy all those ideas really are. So I'm rather frustrated. It seems to me that to fight for freedom, free markets, is still the task of today…”

Klaus’ struggle to win his nation away from communism informs his unwavering commitment to the strictest of free market principles. While this integrity is admirable, his failure to grasp the potential of global climate change to devastate the whole superstructure of the free market economy he is so loyal to is a clear case of missing the forest for the trees.

From WSJ

The conference, though, was not about climate change as much as it was about New Energy and the New Energy economy. Matt Rogers, a senior adviser to Obama administration Secretary of Energy Steven Chu, and Jason Grumet, President of the Bipartisan Policy Center and an Obama campaign energy adviser, talked about how the stimulus package funds and cap-and-trade system revenues will be used.

Rogers, on putting the stimulus funds to work: “One of the things we're [considering] is, can we go out and use private banks, both commercial banks and investment banks, to underwrite the loans where we provide credit authority for the loan guarantees rather than having to have the department gear up to do all of the underwriting on its own…The great news is that the market is bringing forward a set of really exciting projects. For every one of the loan-guarantee solicitations so far, we are oversubscribed 2 to 1 in terms of the amount of requests versus the amount of funding available. The opportunity here is to demonstrate to Congress that this is actually very good value for money, that you can have a lot of impact in the market, that you can bring a lot of private capital in if the government plays a specific role in financing these projects…”

The question was raised of whether using the stimulus package monies for energy isn’t just a sort of creeping socialism and whether the cost of a cap-and-trade system is a type of tax and a type of wealth redistribution. Grumet had an interesting answer.

Grumet: “There's this gotcha that this is a redistribution of resources. Well, of course it's a redistribution of resources. That's called public policy. Cutting taxes is a redistribution of resources. Putting money into long-term cancer research is a redistribution of resources. Doing nothing at all is distributing resources, in the form of costs, to future generations. So the question is, is it a good redistribution of resources or a bad redistribution of resources? …Probably everybody in the room believes that the free market should rationalize these costs. And the point of a cap-and-trade system is to put a cost on something we don't like -- carbon. And then the question is, what do you do with the money? If you cut taxes on things we do like, like labor and savings, I would argue that not only can you make a significant move in solving the problem, but you can also improve the generative possibilities of the economy…”

Eric Schmidt, the Google CEO, offered a rational for the climate change fight and the building of a New Energy economy that could not help but make sense to any businessman.

Schmidt: “Because energy matters. And the way you solve the environment problem is you solve the energy problem. From a Google perspective it's the right thing to do for the world. It's also good for our business because we're in the information business. And a lot of the energy solutions involve a lot of information.”

The Google Plan for 30% in 2030. (click to enlarge)

Three of the most prominent U.S. venture capitalists, John Doerr, partner in Kleiner Perkins Caufield & Byers, Vinod Khosla, founder and managing partner of Khosla Ventures, and Bryant Tong, managing partner of Nth Power, described the kinds of investments they are and are not making these days. Tong likes “clean” coal (Accelergy Corp. ) and transmission. Doerr likes smart grid technology (Silver Spring Networks Inc. ) and transmission. Khosla likes transmission.

Khosla: “Today, presuming I didn't care one bit about the environment, investments that are carbon-heavy are poor economic-risk-adjusted bets…Having said that, there is a confusion in the marketplace between building transmission and building a smart grid. People -- especially, I would guess, 90% of senators in Washington -- don't know the difference. One is about building capacity for transmission, and the other is about building the grid smarter. Between the two, I've said publicly, building transmission is 10 times more important. But a smart grid is environmentally fashionable…By the way, we don't need government to build transmission. If we solve the eminent-domain problem, there's enough money in transmission that private industry would build all of it. They [governments] have to give you right of way and eminent-domain rights. So, it's not that difficult a problem to solve, and it's not about money…”

There was a discussion between Richard Edelman, President/CEO of the influential public-relations firm Edelman, and Mike Jackson, Chairman/CEO of auto retailer AutoNation Inc., about how much people will pay to have New Energy and Energy Efficiency.

Jackson was blunt about the volatile car market: “You tell me the price of gasoline and I will totally tell you what people will buy and what trade-offs they will make. They are basically looking for a two- to three-year payback. So in '08, starting the year at $3 a gallon, everybody talked about fuel efficiency but nobody really acted. At $4 a gallon, we had the biggest shift in consumer preference in the history of the business -- a stampede to fuel efficiency. We shut down all the truck factories and switched over to fuel efficiency. Gasoline is now $2 a gallon, and I have fuel-efficient cars parked in my dealerships as far as the eye can see. I cannot give them away…If you just look at the value of a used Prius one year old, at $3 a gallon it is worth $20,000. At $4 a gallon it is worth $25,000. And at $2 a gallon today it is worth $15,000.”

Edelman spoke with the assurance people in marketing have when they know the thoroughly investigated purchasing profiles: “People are prepared to pay something like 10% more for an ethically produced product. Not 45%, which is the price point that many manufacturers are going out at…Except for organic food…”

Amory Lovins, CEO of the Rocky Mountain Institute (but known at NewEnergyNews as “His Excellency of Efficiency”), reiterated his familiar and ongoing sermon – which he delivers with a sort of impish wonkyness that belies his deep passion – on the enormous economic opportunies in Energy Efficeincy.

Lovins: “…[W]e are seeing the sheep and goats divide nicely between the companies that understand [Energy Efficiency] is one of the highest-return/lowest-risk investments in the economy and those who don't…I think the heavy lifting will be done by people for their own profit motive. And that's fine with me. In other words, government should steer, not row. It's nice if government steers in the right direction. But we found we would not actually need any new energy taxes, subsidies, mandates, federal laws or anything else either party doesn't like or could mess up, because the business case is so compelling even without them…”

(click to enlarge)

Lovins highlighted one of the most effective tools government has to steer toward better efficiency: “…[H]ave you noticed that in 2006, for example, U.S. use of oil and coal and energy went down? Well, it happened because we cut energy intensity faster than the economy grew. That was with 48 states rewarding utilities for selling you more energy and penalizing them for cutting your bill. That's just as dumb as it sounds. We need to stop doing that…Decoupling and shared savings. It is the biggest lever for saving electricity and gas…”

T. Boone Pickens was also at the conference, touting his well-publicized plan to end U.S. dependence on foreign oil imports by shifting the grid from natural gas to wind power and shifting vehicles from imported petroleum fuels to compressed natural gas fuel. He was asked if turning away from oil importing was a denial of the free market.

Pickens: “Do you think OPEC is a free market? That's crazy. Of course it's not a free market. We're in a game where we don't have the cards. And when you're in a game with no cards, get out of the game, if you can. We can…”

click to enlarge

He also described what he sees as the path for wind power development.

Pickens: “You've got two problems with wind right now…[T]he first one is we don't have the money, and it doesn't make a damn about the other two…[T]here is no financing…Go back two years ago when we started on a huge wind project…two years ago, you had them lined up wanting to finance it because natural gas was selling at $9 and wind is priced at the margin and the margin is natural-gas power…Now natural gas is $4…[I]t will come back together. This is a geologist talking. You're really optimistic if you're a geologist because you drill so many dry holes that you have to remain upbeat all the time. Hell, I've got two years. I don't start receiving turbines until 2011. So I've got to have it financed and be ready to go and breaking ground in the summer of 2011, which is two years away. That's a lot of time…”

Pickens explained the urgency of his plan in his uniquely earthy style. There are more eloquent explanations for why it is time to commit to building the New Energy economy but there is not one more bluntly true.

Pickens: “It's kind of like planting a tree. You know, the best time to plant a tree would have been 20 years ago. But the second best time, if you didn't plant it then, is today. We haven't had an energy plan in 40 years. So don't talk yourself out of it -- "Well, we don't have the infrastructure, and well, we need to drill some more wells," or whatever. This will happen. I believe in America. I believe we can solve our problem. And I'll tell you what, whatever we do, it beats the hell out of buying oil from the Mideast. Now that's all there is to it. So let's get at it and get going.”

Pickens is an old oilman and a lifelong Republican. Al Gore, the ultimate Democrat and a lifelong environmentalist, wanted to plant the tree 20 years ago. It didn’t get planted. Now, he wants to plant it and grow it in 10 years. His RePower America plan is detailed at We Can Solve The Climate Crisis. Gore was asked about his 10-year plan during his presentation.

Gore: “It is doable…I think that we're at a moment in history when we as a civilization have been slow to recognize the enormity of the climate crisis. It is a genuine planetary emergency. And this is the moment to make a one-off investment in the transformation of our energy infrastructure from one that is based on dirty and expensive, declining, vulnerable carbon-based fuels to one that's based on fuels that are free forever…”

Sounds about right.

ECO:nomics; Creating Environmental Capital
March 9, 2009 (Wall Street Journal)

WHO
Václav Klaus, President, Czech Republic & President, European Union; Al Gore, Chairman, Alliance for Climate Protection; Eric Schmid, Chairman and CEO, Google; T. Boone Pickens, Chairman, BP Capital Management; Matt Rogers, Senior Advisor to the U.S. Secretary of Energy, U.S. Department of Energy; Bjørn Lomborg, Adjunct Professor, Copenhagen Business School; Mike Jackson, Chairman and CEO, AutoNation; Amory Lovins, Chairman and Chief Scientist, Rocky Mountain Institute; John Doerr, Partner, Kleiner Perkins Caufield & Byers; Richard Edelman, President and CEO, Edelman; Vinod Khosla, Managing Partner, Khosla Ventures; Jason Grumet, President, Bipartisan Policy Center; Bryant Tong, Managing Director, Nth Power (among many others)

WHAT
The Wall Streest Journal’s 2nd annual ECO:nomics – Creating Environmental Capital conference.

The Gore Plan. (click to enlarge)

WHEN
March 4-6, 2009

WHERE
Bacara Resort & Spa, Santa Barbara, CA

WHY
- The purpose of the conference was to gather information that would put in perspective risks and opportunities in the rapidly expanding New Energy economy.
- The conference is by invitation only but offers a uniquely powerful array of speakers because of WSJ’s influence.
- The Journal asks its speakers to provide the kind of information CEOs need strategic planning.
- Journal Environmental News Editor Jeffrey Ball said this year’s conference comes at a time of especially great uncertainty.
- The booms in the solar and wind industries have slowed. Sales of hybrid vehicles is down.
- Capital markets are frozen.
- Energy prices have dropped. Oil is ~$45/barrel, down from ~$142/barrel in July 2008.
- Most New Energy players believe their bets will pay off in the long run and are working to hold on.
- Expected over the longer term: Improving economy, more attention to global climate change solutions, technology to cut greenhouse gas emissions.
- Questions posed at the conference: How can New Energy and Energy Efficiency players hold their own while waiting for the economy to come back? Is “clean” coal the future of New Energy or a fantasy? Is Eric Schmidt, CEO of Google Inc., right that New Energy will generate 30% of U.S. electricity by 2030? ( Michael Morris, CEO of American Electric Power Co., doubts it.) Will the car of the future be a plug-in hybrid electric vehicle (Google), will it burn biofuels (Khosla) or nautral gas (Pickens)? How and when will there be a price on emissions? Tax or cap-and-trade or both?

(click to enlarge)

QUOTES
- Doerr, venture capitalist: “I like to compare the energy-innovation industry with the Internet-innovation industry. Fifteen years ago, we didn't have a Web browser, think of that. Fast-forward to today, there are about a billion people on the Internet, and the Internet economy is $4 trillion…Fifteen years of rapid change transforms everything. Today, the energy economy world-wide is $4 trillion. The number of people with access to electricity is two billion. So, by any measure, the energy economy, which is going to be transformed, is larger than the Internet by several times. What I think that tells us is we need innovation. But all of the innovations on this stage are not going to be enough to get it done. We've also got to get the playing field right, we've got to get the marketplace rules right…”
- Khosla, venture capitalist: “I did a little analysis. If we said we want to replace all gasoline in this country by 2030, it's only 22 years. How much capital would it take? Far less per year than we invested in telecom during the telecom 10-year boom. That's pretty amazing statistics…These numbers, you can make them sound very large, but when people can make money at it, when there's a rate of return, the investments start popping up in all sorts of ways.”
- Gore: “When President John F. Kennedy in 1961 said that we will put a man on the moon and bring him back safely in 10 years, there were many who felt that was impossible. But eight years and two months later, Neil Armstrong set foot on the moon…And in the control room in Houston cheering that day, the average age of the systems engineer was 26, which means that when they heard the challenge, their average age was 18. The generation coming on is by and large fully committed to this kind of transformation…”
- MR. GORE: You have to put a price on carbon, absolutely.
- MR. MURRAY: Do you care if it's a carbon tax or a cap-and-trade system?
- MR. GORE: I favor both. And there are quite a few countries in the world, principally in Europe, that already have both. The most efficient way to get the market working for you is with a CO2 tax, the revenue from which is offset by reductions elsewhere in the tax system. So it's revenue-neutral…And several countries, several provinces in Canada, some regional governments elsewhere in the world, have done that and have had, by and large, a good success with it. But it's difficult to imagine in the foreseeable future any kind of harmonized CO2 tax globally. So, the cap-and-trade system is the best way to get a global agreement that allows the market forces to work for us instead of against us.)