Chapter 11—The Stone Age Didn’t End Because We Ran Out of Stones

• Tianjin, China= home of one of China’s big auto-makers

o September 2007= China “Green Car Congress”
 Talk about latest in green car technologies
 Thomas Friedman said America would need 5 years to clean power and energy
efficiency tools, while China can “get dirty” in recompense for the Industrial
Revolution
• Said to make it into a “competitive issue”
• Clean power is going to be the global standard for the next decade
o Clean power tools= next industry
 Countries who have more of them will have a competitive advantage
 Clean air and fastest business
• Winning formula: REEFIGDCPEERPC < TTCOBCOG
o A renewable energy ecosystem for innovating, generating, deploying clean power, energy
efficiency, resource productivity, and conservation
 The true cost of burning coal, oil, and gas
• But we’re still not doing all we can
• Energy Internet
o Smart grid= necessary to drive energy efficiency, reduce demand and emissions
 Not sufficient alone: Need abundant, clean, reliable, cheap, electrons
• Advances in renewable energy (wind, solar, geothermal, hydrogen, cellulosic ethanol) have been
incremental but we NEED exponential breakthrough
• Energy innovation is hard
o There are limits
 Physics, chemistry, thermodynamics, nanotechnology, biology
o BUT we haven’t really tried
 No coordinated policies, tax incentives, disincentives, regulations Energy
Internet
 No effort to move existing clean technologies
• We cannot regulate out way out of the problems of the Energy-Climate Era, only innovate
o Mobilize the most effective system for transformational innovation and
commercialization of new products
o “There is only one thing bigger that Mother Nature…Profit”
• Need of a market for clean energy
o Innovators collaborating for breakthroughs
o Create demand (“crazy demand”) for existing clean power technologies
 Reduce the cost of these  competitive to fossil fuels
• Need the free market Can generate and allocate enough capital fast enough and efficiently
enough for innovators and companies and projects
o Then commercialize
o Not much innovation in clean power now
 Paul Collier: “Survival of the fattest”
 Coal, oil, natural gas, refineries, gas station
• U.S. meddles with free market
o Tariff on sugarcane oil from Brazil
 Less on crude oil from Saudi Arabia
 Brazilian oil=more energy than American corn ethanol
 • We’re dependent on gasoline for transportation
• Difficult to introduce alternatives
o Tax incentives for oil, coal, gas industries
 Not consistent for renewable energy
 “You are not going to get energy innovation at scale when a barrel of oil is
cheaper than a barrel of water and a barrel of milk”
• What we need is an “ecosystem of innovation”
o System of policies, tax incentives, disincentives, regulations for sources of clean
electrons
o “If the government did reasonable things, the rest would come into place”
 Other industries in the free world have begun to understand this and begun
promotion
o Also, education, and funding of basic research that pushes the limits
• In the long term: clean energy is a solvable problem.
• Statistics
o Total investment in research and development by electric utilities in the U.S. in 2007= .
15% of revenues
 Not enough money… Pet food spends more
o Last big breakthrough in clean energy production (U.S.)=1957; world’s first commercial
nuclear reactor
o According to Jeffrey Immelt, worker in GE
 8/9 innovations in health care, one in power
• Same basic coal-fired power plants
o Market not shaped to produce clean energy innovation
• Edward Goldberg, president of Annisa Group, business consultants and professor at Zicklin
School of Business: “Modern Capitalism…”
o Major energy companies not pressured by forces of modern capitalism to give anything
for new energy sources
o They are not punished for lack of innovation because there is not much demand
 Back to taxes and incentives… the price signal

Prices and Innovation

• Saudi Arabian oil minister (Sheikh Ahmed Zaki Yamani)
o 1970s: warned not to raise oil prices too high and fast
 prevent gov’t and market reaction in the west that would promote innovation
o “The Stone Age didn’t end because we ran out of stones…” It ended because people
invented alternative tools made of bronze and then iron
 Price signal: price of oil vs. price of renewables
• Need to give market signals
o Carbon tax, gasoline tax increase, renewable energy mandate, cap and trade system that
indirectly taxes carbon emitters
• Hard to get people to shift to clean fuels
o Tax what we don’t want, subsidize what we want
• “Experience Curves for Energy Technology Policy” (2000; International Energy Acengy report)
o If government increases demand by using price signalsmove existing technologies
down the learning curvebigger deployment at lower costs
• Stimulate the market to get existing renewable energy “down the learning curve”
 • “Focus on the market, not on a Mahnattan project”
o Unique uncommercial products
o Create class-market commercial products
• Price signal could be a floor price, not tax
o Compete with old alternatives
o Ex. Prius vs. Toyota Corolla
• Industrial-innovation companies should go “All in” for innovation
o Marketengineers, scientists, researchersglobal manufacturing and
marketing00>products wider, farther, faster
• Bioengineering companies: GE, DuPont, Microsoft
o Not as big on clean power as they should be
o Need price certainty
o No standards for energy (Unlike Denmark, Spain, Germany)
 Wind-turbine manufacturers in Europe
• America abandoned wind because price of oil fell
• Each state has a different standard on renewable energy
o Half have a requirement, but states have a different standard
o Congress tried to pass uniform standard in 2007; failed
 10% renewables in Europe
 Need certainty of demand
• Government needs to invest in renewable energy
o In the end transform the economy and spare future problems
• “Bubbles” can dive innovation  possible next big boom

Prices as a Brake on Bad Behavior

• Why reshape energy? Life and death/stability and instability
o “Continuing with the Dirty Fuels System, in a world that is hot, flat, and crowded,
will drive all free trens shaping the Energy-Climate Era to extremes
 Energy supply and demand, climate change, petrodictatorship, biodiversity loss,
energy poverty
• “Capitalism may collapse because It does not allow the Markey to tell the ecological truth”
(Oyestein Dahle, former VP of Exxon for Norway and the North Sea)
o Industrial-age capitalism treated pollution, waste, CO2 emissions as “externalities” that
could be ignored
 Externality: any cost/benefit resulting from a commercial transaction that is
borne by or received by parties that are not directly involved in the transaction
• Climate change occurs because what is not priced is not valued: open land, clean air and water,
healthy forests
o Hot landfill of an earth
o Gov’t needs to correct that failure
 Need to use tax and education (like used in stop-smoking campaigns)

What Kind of Price Signal? (Strengths and weaknesses of each option)

• Cap-and-trade program
o Gov’t sets an overall cap on the level of CO2 that can be emitted, reduced overtime
 Fewer CO2 emissions and higher CO2 emission costs
o Preferable to a carbon tax (Eileen Claussen, president of the Pew Center on Global
 Climate Change)
 Cap provides environmental certainty (based on scientists also)
 Some people will just pay the tax
 Cap gives gov’t more flexibility
• Ease transition of businesses dependent on coal to a low-carbon economy
o Tax preferable to cap?
 Simpler
• Would not cut across the whole economy
• Easily adjusted
 Cap disguises pain
• Carbon tax would not make exports more expensive and less competitive
o Different things go into the price of exports
o Other European countries have had CO2 taxes
 Denmark=leading exporter of wind turbines and an unemployment rate of 2%
• Gasoline
o Gasoline tax (Philip Verleger Jr., energy economist)use $ to reduce payroll taxes and
create gov’t that would buy back gas guzzlers and crush them
 Would reduce consumption, shift people to more fuel-efficient vehicles, shrink
money to petrodictators, improve air quality, strengthen the dollar, balance of
payments, mitigate global warming, give citizens a sense that they are
contributing something to the war on terrorism
o “Feebates” (Amory Lovins, environmentalist) on automobiles to discourage people from
buying gas guzzlers, and but fuel0efficient cars instead
 New owners pay a fee/get a rebate (depending on the car’s efficiency)
• Fees pay for rebates
• Buyer saves $, automaers make more profit, and national security
improves
o National renewable energy mandate (Jefferey Immelt)
 Tell power companies in every state that they have to generate their power to a
certain percent by a certain date using renewable energy
• Stimulate innovation
o Make a market sure for investors
• George W. Bush pushed the Texas Renewable Portfolio Mandate in 1999
o Wind energy, then mandate upped from 2,000 megawatts in
20055,000 in 2015
o New nuclear project

Read my Lips (the scope of the challenge)

• The first step is always painful and more expensive than the status quo
o Will become more expensive as we wait
• Already taxed, but will become taxed by Mother Nature as well
o Really, both people for and against taxes on clean energy impose a tax
o Ex. Gasoline and fuel-efficient cars
o Fuel economy declined because gas was not taxed since 9/11 (good incentive?)
 Demand for fuel-efficient vehicles
• Gas prices increase  transition and spur to innovation
o Cost is high because we waited so long to act
 • Most Americans will pay more for energy if they are convinced that doing so will give them cars,
homes, appliances that will lower their energy consumption
o Nation-building strategy

Chapter 12 (part I of II)—If It Isn’t Boring, It Isn’t Green

• News facts
o Erie, PA has a trade surplus with China, Mexico, and Brazil
 They have GE transportation
• Make exportable locomotives (Industrial-size diesel engines for trains)
 E has great engineering, global market, and U.S. gov’t demanded higher
standards
• Innovationengine with less pollutionlower CO2 emissions
• Green revolution: the more boring the work, the more revolutionary its impact
o “Naked Gun 2½ rule” (From Leslie Nielsen movie)
 Dr. Meinheimer explains the intricacies of the renewable energy policy
• Regulations and standards matter
o Price signals alone are not sufficient
• Need breakthroughs in energy efficiency and the efficient use of natural resources
o More growth, more heat, more light, more power from fewer energy and natural
resource inputs
 Enable us to reduce CO2 emissions even before we have the clean electrons
• Enable us to use fewer clean electron as they do become available
• We need to nurture all the cost-effective energy efficiency right now
o Cheaper than generating new electrons
o ALSO need to nurture the cheapest emissions-free elections for the rest if our energy
 Grow in the cleanest way possible
• The role of regulation in stimulating energy efficiency…
o GE= “technology campus” with world-class engineers
 Double average wage because of successful diesel locomotive export
• Most energy efficient in the world
o Lowest CO2 emissions, traditional soot particles, and nitrogen
oxide
o Reliable
 Design was driven by the U.S. Environmental Protection Agency’s Tier II
(reduced) emissions standards for locomotives and other transportation
vehicles
• As mpg goes upcarbon emissions go down
o China’s incentive to buy
o New EVOs= more efficient
• Companies like to locate where the engineers are the best and most plentiful and where the
standards are constantly pushing them higher
o Connected with higher climate and emissions products demand smarter workers who
want to live in good environmentsmore higher standards
• “Porter hypothesis” (Michael Porter, Harvard Business school professor)
o Appropriately planned environmental regulations will stimulate technological
innovation, leading to reductions in expenses and improvements in quality
 Domestic businesses may attain a superior competitive position in the
international marketplace and industrial productivity may improve as well
• Pollution is waste
o Wasted resources, energy, materials
 Eliminating waste will use capital, technology, and raw materials more
productively
• Bush administration and Clinton administration on air conditioner efficiency standards
o Raise SEER 10SEER 13
 More cooling for less electricity
 But went back to SEER 12
• Less % improvement
• Industry, and often even regulators, vastly overestimate the costs to the economy of meeting
the higher standards
o Because the underestimate the role of “unanticipated innovation”
• Energy efficiency= the quickest, most effective way to create clean power
o The best form of power is the power that doesn’t have to be generated at a;; because
you eliminated demand for it
• If one wants to have an impact on the environment, the first and most important thing one
can do is learn the rules around energy efficiency and emissions and how they get made
o What the fossil-fuel giants do
• Frances Beinecke (Pres. Of NRDC) on Noah Horowitz
o Engineer from San Francisco
o Tighten performance standards
 Saved 14 billion in electricity costs