A revolution is on the horizon: a wholesale transformation of the world economy and the way people live. This revolution will depend on industrial technology—capital-intensive, shovel-in-the-ground industries—and will almost certainly create the great fortunes of the twenty-first century. But this new industrial revolution holds a more important promise: securing the world against the dangers of global warming. It is developing amid the political, economic, and technological equivalent of the perfect storm: worldwide concern about the enormous threat of greenhouse gases, growing realization that we are prisoners of petroleum—hostage to the unstable, sometimes hostile, regimes that control the supplies of crude oil and natural gas—and, finally, huge and accelerating advances in technology that make possible unprecedented breakthroughs in how we make and use energy.
This book is about the kinds of inventors who will stabilize our climate, generate enormous economic growth, and save the planet. It is also about the near certainty that unless the United States acts as a nation to give these innovators the chance to compete fairly in the world’s biggest business, they will fail to avert the crisis in time.
A BIT OF CLEAN-AIR HISTORY will explain how U.S. leadership can solve the most dire environmental problem of our times—how collectively we can head off catastrophe, create wealth and jobs, and enhance our security.
Thirty years ago, scientists and fishermen began noticing a startling decline in animal and plant life in lakes and forests throughout the eastern United States. In 1981 the National Academy of Sciences issued a report documenting the cause: sulfur dioxide (SO2) pollution. Originating mostly from coal-fired power plants, sulfur dioxide was causing rain and snow to turn acidic, and that acid rain was killing aquatic life and damaging forests.
The discovery sparked bitter debate over how to reduce sulfur dioxide emissions and at what cost. The key instrument then available for tackling acid rain was the 1977 Clean Air Act, which had established a “command and control” approach to air pollution. Not only was every newly built electric generating unit required to meet a uniform ceiling on its emissions rate, but it had to do so by installing a “scrubber,” or flue-gas desulfurization unit, an expensive piece of capital equipment that added tens of millions of dollars to the cost of the power plant. It didn’t matter if a power plant could cut emissions more cheaply by burning cleaner coal or by making its boiler more efficient—it still had to install a scrubber. Meanwhile, overall emissions continued to rise: old plants were largely exempted until they modernized, and new plants, even if in compliance with the law, still added new emissions to the total.
The one-size-fits-all solution failed to take advantage of the local knowledge and experience of plant operators. It actually impeded quick adoption of new technologies. And it made the whole process far more expensive than necessary: some existing plants could cut pollution cheaply but weren’t asked to, while other plants spent a fortune to comply.
By the 1980s, Environmental Defense Fund had taken the lead in arguing for a different approach. The key was to mobilize the market: to make far deeper cuts in pollution and at much lower cost. During the 1988 presidential election, strong pressure by New Hampshire environmentalists elevated acid rain as an issue all candidates had to address. Soon after George H. W. Bush was elected president, Environmental Defense Fund president Fred Krupp met with White House counsel C. Boyden Gray. He outlined for Gray how the president’s campaign pledge to curb acid rain could be fulfilled using the world’s first “emissions cap and trading system.” He argued that the president could be more ambitious on the environmental goals while still garnering business support. After dozens of meetings, the Bush administration embraced Environmental Defense Fund’s proposal and submitted it to Congress, which—led by Senator George Mitchell of Maine and Representatives Henry Waxman of California and John Dingell of Michigan—wrote it into the Clean Air Act of 1990.
The law started with the scientific bottom line. It required a 50 percent cut in sulfur dioxide emissions from the total volume released by fossil fuel–fired power plants—the minimum reduction that atmospheric scientists believed was necessary to begin bringing lakes and rivers back to life. It set a permanent upper limit—a cap—on these emissions, then divvied up the quantity (in tons) of pollution allowed among the power plants. Even as new sources of pollution came on line, the cap was ratcheted down over time so that the total amount of pollution fell. That declining cap, guaranteeing that environmental targets would be met, was unprecedented. But it was the second part of the law—the emissions-trading system—that completely transformed the paradigm that had historically pitted environmentalism against economic growth.
The trading mechanism allowed a power plant that cut its sulfur dioxide pollution more than required to sell those extra allowances, and permitted plants that could not find a better way to cut their own emissions to buy them. A new commodities market was born. A plant that could beat its emissions target had a profitable new asset to sell, and financial incentive to develop ways to cut emissions even further. The buyer had the flexibility to find the cheapest way to meet the cap; it was now the power plant operator—not the regulator—who decided how to integrate emissions control into an overall business plan.
Two months after the law was passed, Richard Clark, then CEO of Pacific Gas and Electric, America’s largest publicly owned utility, sat next to Fred Krupp at a dinner for the President’s Commission on Environmental Quality. “When you were talking to the president about this cap-and-trade idea, I frankly thought you’d lost it,” he said to Fred. “But now that there’s a way to make money from cutting pollution, I have a dozen proposals for emissions reductions from my own employees on the shop floor, and a dozen more from outside consultants. The environment isn’t just a money loser—it’s a profit center. I have to admit it’s a powerful law.”
One company that jumped on the new market opportunity was General Electric (GE), whose scrubber technology—in the absence of strict caps on emissions or any rewards for overachievers—had not advanced much since passage of the 1977 law. For years, GE had been selling clumsy units that clogged up so frequently that operators had to build two parallel scrubbers to make sure one was always running. Eli Gal, whose current carbon-cutting work is featured in Chapter 8, was then at GE Environmental Services, and he recalls how quickly that all changed once the cap-and-trade mechanism became law. GE began devoting serious resources to clean-up technology, and Gal’s team had its breakthrough: it devised a scrubber that turned the sulfur dioxide into gypsum, which does not gum up the works and is itself a marketable product.
Elsewhere, the new law inspired innovative thinking about low-tech solutions. For decades, conventional wisdom held that low-sulfur coal from Wyoming could not be mixed with high-sulfur coal from Appalachia—at least, not in quantities large enough to significantly reduce sulfur dioxide emissions. The new incentives made it worthwhile to take a second look at that belief—and before long, scientists and engineers proved the conventional wisdom wrong. Capital and ingenuity were suddenly flowing to solutions both high tech and low, for there was profit to be made.
Within five years, U.S. utilities cut emissions 30 percent more than the law required, even while increasing electric generation from coal by 6.8 percent and reducing retail electricity prices. During that same period, the U.S. economy grew by a healthy 5.4 percent. Dire predictions that the program would eventually cost more than $6 billion a year proved wildly off base; recent studies peg the actual cost at between $1.1 and $1.8 billion. And by 2000, scientists were documenting decreased sulfates in Adirondack lakes, improved visibility in national parks, and widespread benefits to human health.*
THE CAP-AND-TRADE MECHANISM had unleashed the most powerful economic force in the world in the service of environmental goals: entrepreneurial capitalism. The chapters that follow demonstrate that the same market forces can be brought to bear on the problem of global warming.
As well as markets have worked over the years—spurring the production of electronics of higher and higher quality at lower and lower prices, for example—they have failed the environment because they have failed to account for the cost of pollution. No cost attaches to the global warming pollution emitted by power plants, factories, and cars, and no benefit flows to those who reduce that pollution. The legendary venture capitalist John Doerr, an early funder of Google and Amazon.com (and a supporter of Environmental Defense Fund; Ann Doerr, his wife, is on the board of trustees), puts it this way: “Every single day, we dump 70 million tons of carbon dioxide into our atmosphere like it’s an open sewer, like it’s entirely free to do that. It’s really hard to change consumer behavior when consumers don’t know how much their behavior costs.”
The solution is, at its core, simple. The U.S. Congress must set a legal and steadily declining limit on global warming pollution. The allowances will be divvied up among emitters, or auctioned by the government to raise revenues—or some combination of the two. Polluters who emit more will need to pay for the extra pollution reductions achieved by others; those who can reduce global warming pollution further will profit by selling those reductions in an open market. We can, in short, use the power of the market system to climb out of the hole created by flawed markets. We can offer a pot of gold to those who develop new ways to generate carbon-free energy and new technologies to remove carbon from our smokestacks and atmosphere. We can channel the full range of human impulses—ingenuity, idealism, ambition—into undoing the damage and healing our planet. America’s greatest strength has always been its boundless capacity for invention. In the words of one energy entrepreneur, “The beauty of this country is that every time we’re pressed to the wall we come up with new things—we become the most creative force in the world.”
GIVEN ENOUGH TIME, many of the technologies described in this book might ripen on their own. But time is the one thing we don’t have. Late in 2007, scientists noted that emissions of greenhouse gases were growing considerably faster than expected.* They also dramatically revised, downward, their estimates of how much pollution the planet can tolerate. The new numbers mean that we must not simply stop the annual growth of emissions. Worldwide, nations must cut emissions in half over the next fifty years. To reach that goal, the United States will have to cut emissions by 80 percent.
The scientific consensus is that inaction will change the earth within a few decades into a place unlike any ever inhabited by humans. Business as usual will open the door to catastrophe: flooding and the dislocation of millions of people in South Asia’s vast deltas; chronic drought and mass malnourishment in Africa; wildfires, deadly heat waves, and coastal destruction in the United States; the extinction of half the world’s living species. U.S. generals warn of unprecedented waves of refugees, and of threats to national and global security from wars over resources. In the context of such all-too-plausible scenarios, the wholesale reinvention of the way we make and use energy is not a choice but a matter of survival.
Securing our planet against calamity will require a second industrial revolution as sweeping as that effected a century ago by the likes of Thomas Edison, Henry Ford, and John D. Rockefeller. We will need to harness energy from the sun, the waves, living organisms, and the heat embedded in the planet. We will need to reinvent automobiles, clean up emissions from the immense and rapidly growing coal infrastructure, use the energy we have far more efficiently and put an end to tropical deforestation. What will become apparent on these pages is that we can achieve this revolution, but only if we make it a fair game. No single technology will stop global warming, but there is a silver bullet: a cap on carbon that will launch all these solutions into the mainstream.
THE INNOVATORS YOU WILL MEET in the chapters that follow are wildly inventive and ambitious. Risk-taking is their favorite sport, “disruptive” their favorite word. Many actually relish the prospect of going up against the biggest companies in the world. As an undergraduate at MIT, Neil Renninger—now a chemical engineer at Amyris Biotechnologies—supplemented his income by playing on that university’s legendary blackjack team, whose exploits were chronicled in the 2002 book Bringing Down the House. He faces Amyris’s challenges with the same spirit he brought to the casinos. “If you take educated risks, figure out where you’re advantaged, and play to those advantages,” he says, “you can beat the house.”
The investors who fund these inventors are just as certain of their power to make historic changes. Silicon Valley leaders like John Doerr and Vinod Khosla, a cofounder of Sun Microsystems who is now also a major venture capitalist, have shifted immense resources into clean-energy technologies (Doerr calls it the “mother of all markets”). Where others look at the trivial market penetration of, say, solar technology and see evidence that alternative energy will remain marginal, these investors see a massive market opportunity: to meet China’s stated goal to derive 10 percent of its electricity from renewable sources (not counting large hydroelectric projects) by the year 2010 will require 6 gigawatts of electricity—more than two years of output from all the solar-cell factories in the world today.
Yet they also know that whether they succeed or fail depends ultimately on what we demand from our political leaders. The current rules of the game are steeply stacked against the new-energy entrepreneurs. Even the best ideas will fail in a contest as rigged as the $5 trillion energy business is today. While innovators developing semiconductors and the Internet got to play in a virtually open field, these energy innovators are up against the most powerful companies in the world, companies that have spent decades successfully pushing for subsidies, trade agreements, and regulatory structures that favor their business. Oil and gas companies spend some $60 million a year lobbying for policies that favor their industries and receive, according to the U.S. Government Accountability Office, benefits worth $6 billion a year. Incumbent companies control pipelines and transmission grids; the high cost of upgrading and connecting to the grid can strangle a startup renewable-energy plant. Venture capitalist Doerr observes that each year the federal government devotes just $1 billion to research on renewable sources of energy—less than ExxonMobil earns in a single day. Most important, policymakers are only just beginning to confront the huge hidden subsidy for fossil fuels: that no financial account is taken of the use of the atmosphere as a dumping ground for the pollutants that cause global warming.
Though America’s representatives have been aware of global warming since 1988, when Senator Al Gore held the first congressional hearings on the data then beginning to emerge, only in recent months has the U.S. Congress displayed real interest in addressing climate change. Some of the legislative proposals are hollow grandstanding; others would ensure meaningful action. There are many bad ways of moving forward from here, including continuing to give taxpayers’ money to the businesses with the best lobbyists. The huge federal subsidies for corn ethanol, for instance, are chiefly testament to the power of the agribusiness giant Archer Daniels Midland and other agricultural interests.
The history of the development of wind and solar power—booming in times of high oil prices and subsidies, busting when those disappear—reinforces the necessity for long-term policies that do not require Washington to pick winners, but that allow the United States’ best handicapper—the market, freed of existing flaws—to sort out who really can deliver the goods. Much of the U.S. business community has already embraced that view. When the California legislature was debating passage of the nation’s first economy-wide cap on carbon emissions, clean-tech proponents effectively countered claims that carbon legislation would devastate the economy, by detailing the immense opportunities for job growth, profits, and international competitiveness that would be unleashed by the proper regulatory framework. They reminded lawmakers that technological progress driven by innovation is responsible for fully half the growth of the U.S. economy. They found allies in a number of the country’s workhorse companies, which noted that not taking action would almost surely have dire consequences for their business.
In the spring of 2007 ten leading U.S. companies, including General Electric, Alcoa, Caterpillar, and Duke Energy, called for a national cap on carbon emissions; in the months that followed they were joined by dozens of Fortune 500 companies, including the big three U.S. automakers and Shell Oil. And as California and states in the Northeast and Northwest moved ahead with caps on carbon emissions, the nation’s most innovative companies began operating as if a federal carbon cap were already in place. As it switched on a 1.6-megawatt solar array at its Silicon Valley headquarters—the first of 1,000 megawatts of renewable energy it ultimately plans to produce—Google announced that it would “set an internal cost of carbon voluntarily by using a ‘shadow price,’ the theoretical cost of carbon that we expect under a regulatory market. This will allow us to make operational decisions as if there were already a price on carbon. That in turn enables us to include the true cost of power as one of the key criteria in site selection for our data centers—a cost not yet being recognized by the market, but one that will soon become real through carbon legislation. This is an important tool to reduce the financial risk that our energy investments face, and when evaluating power options, it will also put renewable energy on a level playing field.”
A level playing field. That is what these venture capitalists and innovators require—not assurances of profits but enough of a fighting chance to make the huge risks they are taking reasonable. Many still will not succeed. Those who do will need enormous ingenuity and doggedness to make their inventions work at a marketable price. But while you read about these inventors and get a glimpse of what is possible, imagine what it will mean if even a fraction of these high-risk ventures fulfill their promise—if clean, abundant energy becomes a reality.
The stakes are almost unimaginably high.