Monday, November 2, 2009

Elevating the Quality of Discussion--Despite the Deafening Drumbeat

Clearly the end of October was a busy time for clean tech in general and yours truly in particular. This must be the "drumbeat to Copenhagen." Over the span of seven days, I managed to discuss environmental policy with Harvard's Prof. Mankiw (he of Principles of Economics) at just the same time when President Obama was speaking (at the other corner of Cambridge) on clean energy. The following day was what self-proclaimed as the "most widespread day of environmental action in the planet's history." A couple of days later, back in the Bay Area, I attended a dinner with Energy Secretary Chu (and 400 close friends) where he received the Business Leader of the Year Award HBS's local chapter; Secretary Chu had just announced the ARPA-E award decision and was about to board the redeye back to D.C. to testify as part of the Senate Committee hearings on a possible climate bill. Later in the week I attended an eye-opening CleanTech panel in Silicon Valley. Oh, and during my transcontinental flights I was able to catch up on the latest Environmental IEDs (Intentionally Explosive Dramas)--Levitt & Dubner's SuperFreakonomics and Jacobson & Delucchi's cover story in Scientific American--as well as some of their reverberations through the blogosphere (see for example here and there).

My conclusion? Sadly, we still have ways to go before objective, fact-based logic begins to become the norm in the cleantechsphere. Let me give you a few examples:

1) During last week's panel, a member of the audience asked the Venture Capitalist moderating the discussion: "In the past, when energy prices went up, they made it more attractive to dig up more and more fossil fuel which may have otherwise been too expensive; and that's why renewables never took off. How do VCs address the problem that, as renewable energy is raising the price levels, fossil fuel from new sources will suck up all the demand?" (I'm paraphrasing, but that's really what he asked!) The panel looked like a deer caught in the headlights, and subsequently managed to mumble something about the need to provide regulation to limit fossil fuels and thus prevent this outcome.

As would be obvious to any student of Intro to Econ, the causality is precisely reversed: higher prices for fossil fuel (due to peak oil, political forces, and a weak dollar) make expensive alternative energy more viable. This is why the economic textbook response to the climate/energy question is very straightforward (as Prof. Mankiw indicated): A carbon tax would raise the price for high-added-carbon energy (fossil fuels) and expand the market potential for more expensive (e.g., solar, wind, biomass, nuclear) low-added-carbon options. At the same time it would cut demand for energy in general--and for fossil fuel in particular. Alternatively, a direct subsidy for select renewables would increase energy demand overall while reducing the share of fossil fuel (however we'll need to find the money to fund the subsidy). My apologies for this dose of basic economics, but the point it: There are too many poorly-informed talking heads, blogging fingers, and tweeting thumbs in the cleantechsphere. Let’s make sure to bring in the right expertise!

2) Later during the same panel discussion, the moderator raised the idea of nuclear power--apparently just to make sure that each of the panelists had a chance to write it off completely, for the moderator to add some further negative "facts," and for the audience to repeatedly break into applause. No, nuclear energy is a nonstarter; neither in the US, nor in Europe. End of conversation. One could certainly get the sense that a bucket of hot tar and a pile of feathers were awaiting behind the curtain for whoever dared say anything positive about nuclear (or even nukelar, for that matter). Nobody was interested to find out, so the room reached "broad consensus". However, it so happens that most cool-headed analysts do consider nuclear power to be a necessary part of the energy portfolio; specifically, Dr. Chu and the DOE have been very clear about that point. Again, here's an obvious case where (at least in the Bay Area) emotion is trumping logic.

3) Scientific American's cover story lays out a plan to "get all global energy from wind, water and solar power by 2030." With this plan we can eliminate 75% of global CO2 emissions (those from energy generation) for a mere $100 Trillion (yes, as in $100,000,000,000,000.00), 1.3% of the Earth's land (at zero cost), and a complete remake of our transmission infrastructure (cost TBD). What a deal! McKinsey earlier estimated that we can eliminate something like 5% of 2030 global emissions with $1.1 trillion. I have some issues with McKinsey's analysis, but it clearly provides a more attractive investment plan: If the societal cost of CO2 is on the order of $30-$60 per metric ton, McKinsey's plan yields ROI of 10%-20%, while Jacobson & Delucchi's plan promises a whopping 1%-2%. But even Jacobson & Delucchi can't get us to anywhere near the goals of, which calls for an actual 10% reduction (from today's levels) in atmospheric CO2 levels--as opposed to the more-common aim of slowing down the growth rate of these levels. I guess that could be the dictionary definition of OVERREACH. Why is it that--when there is so much important work to be done--authors and activists elect to divert people's attention and focus it onto such unrealistic, pie-in-the-sky initiatives?

4) Finally, a comment on style: I'm just amazed by the nasty ad hominem attacks which have become so commonplace in the cleantechsphere. Paraphrasing an old legal adage: "When the law is against you, argue the facts; when the facts are against you, argue the law; when both are against you, argue louder!" Based on the level of discussion around environmental issues, most people seem to feel that they have neither law nor fact on their side…

Perhaps more than anything else, the on-going nasty C2P2 (Climate Change Public Policy) debate represents a key fallacy regarding the right way to drive change. Will the solution to our environmental issues come out of central planning? How do you think life would be with a centrally-planned Web 1.0 or 2.0, or a centrally-planned transition to desktop computing? Certainly a group of academics, a blue-ribbon commission, or a UN panel could have come up 20-30 years ago with a great transition plan, likely with a price tag around $100 trillion, to promote a couple of favorite technologies. And they would have been completely wrong. Why would it be any different for cleantech?

We have to establish a fact-based, logical set of incentives geared towards entrepreneurial work. In that context, the most critical barriers to progress are the economic recession and the difficulty of innovators to access risk capital. True economic growth and thawing of the risk capital markets would be the most important boosters to real progress. The C2P2 debate is a distraction and, in effect, is part of the problem – since it engenders Fear, Uncertainty, and Doubt (FUD) about the ultimate approach; FUD has always been a barrier to innovation and progress.

C2P2 has to reallocate resources to deal with environmental issues--but these resources should be diverted to the hands of entrepreneurs! Let's get real about creating real incentives for real innovation in the cleantech space:

  1. Establish a carbon tax--at $10, $20, $30, or even $40 per metric ton (after establishing solid yardsticks for lifetime systemic contribution). Let's apply it also to lumber and lumber products as well (given the huge impact of logging on the carbon cycle). And while we're at it, let's call it the CO2/H2O tax and apply it to water as well (as the water problem is significantly more acute and imminent than global warming).
  2. To prevent the CO2/H2O tax from killing the competitiveness of the US economy, every cent of its receipts should be redistributed as cuts in other taxes, including dramatic reductions in personal and corporate income tax and a permanent R&D tax credit; a $30 carbon tax would allow to cut federal income taxes by more than 10%--providing an incentive for work, innovation, and investment.
  3. To cut the FUD factor--let's decide, announce, determine the phase-in/out schedule, implement, and move forward. The continued nasty and ill-informed debate serves no purpose but to delay real action!

We have a great opportunity to effect great economic and environmental benefits. Let's focus on that. Let's not use the overall interest in sustainability and environmental impact as pretext to change the global society and economy; such change may be necessary--but it should be the means, not the end.