Renewable energy = freedom, and we get to address climate change to boot.  With the Copenhagen Summit in full swing, I wanted to add this to the discussion.

200,000 years ago, we first controlled fire, 4,000 years ago we invented the wheel, and 150 years ago we began burning every fossil fuel we could dig out of the ground.  That era will end and be just a tiny blip in the story of man.  However, every effort man has made to get more control over energy from outside of his body, and get more efficient in using that energy, his standard of living has increased, and his level of freedom has increased.

The ultimate end game of man’s progress in the control of energy is to renewably create his energy.  Once that is achieved, there will be no more fighting over resources, and no limit to man’s potential.  Energy = Freedom, or more precisely, renewable energy brings freedom.

And by the way, renewable energy means no emissions, and no carbon, so you get that benefit also.  But I would say the following – that carbon control should not be the cake, it should be the icing.  If you believe that, then the debate over man’s causality in climate change is a moot point, and the only thing that matters is to find the single most cost-effective way to enter the entirely renewable energy era.

I just read about Obama and other leaders deciding to punt on a binding agreement on Climate Change in Copenhagen.  What a disappointment!  Human beings LOVE to procrastinate, so we often need others – policy – to force us into community long-term plans.  It’s such a shame that even the Governments are now procrastinating as well as us individuals.  Maybe it’s just the heath-care plan, maybe it’s just the economy.  I hope those two things are resolved in time for us to make an impact and get a global agreement in place.  At a sustainability symposium that I attended at Caltech yesterday, Undersecretary of the DOE and Physicist Steve Koonin artfully presented how dire the situation really is – mainly because of demographic and economic shifts around the world.  India and China are really going to change the planet as they approach our wealth and flamboyant energy use.

I was brushing my teeth yesterday with the amazing $6.95 Crest electric toothbrush. It’s great – it’s simple, and cheap, and I know the story of the clever entrepreneurs who designed it and sold their company for $400m to P&G.

I was thinking about how I get a new one every few months, instead of just paying $99, or much more, for a great reliable 5-year version. The 5-year version would have rechargeable batteries, a nice inductive charger, a nice stand, and extra brushes. The $6.95 one has none of those, and I throw it out for a new one fairly often. Economically, I come out ahead, never having to lay out $99+ up front and I can have one in more than one bathroom, and one in my luggage for travel, etc. But then I realized I’m throwing it out so often, filling up the earth with the junk, and using up precious materials on the planet. But I do it because it’s convenient, and because it’s cheap.

It’s quite selfish, however. It’s cheaper for me, but for the planet? This example plays itself out in millions of our daily items – not just all of our plastic disposables, cups, bags, but also all of our computers, tires, and really everything. Since there is no charge for throwing anything away, most of the incentive to make something last a long time is offset by the super low upfront cost.

I can’t think of any other way to solve this other than to have a “disposal tax” that is added into the purchase price of everything based on it’s life, element usage, and disposal cost. Unless there is a clear price signal that this matters, I think we will continue to descend into a low up-front cost, higher disposal-rate society. I think there are lots of challenges here, but I think this is very important. I’d love to hear thoughts to the contrary, and either why this wouldn’t work, or why this isn’t necessary.

I’m here at the Clinton Global Initiative Conference in New York, and attended a great panel discussion on cars this morning, led by David Sandalow from the DOE and Jack Hidary.  The discussion was that there are approximately 245 million cars in the United States, and 800 million in the world.  Buy 2020 there will be more than a billion because of all the new cars being purchased in China and India.  If there were even 1,000,000 plug-in hybrids on the road by 2020, that would only be 0.1% of the cars.  10m would only be 1%.  To make a big impact, it’s nearly impossible, because the installed base is so huge.

Today, the world uses 83 million barrels of oil per day, down from the peak a few years ago of 85 million.  The current worldwide capacity to get oil out of the ground is believed to be 85.5 million barrels per day.  With 200 million more cars on the road in just 10 years, the fighting over oil will be extreme.  We’ll need 100 million barrels per day and it’s believed that the most we can get is 90.

The transformation of the car industry that is necessary to enable to world to survive on 90 million barrels per day is mind boggling.  All the great startups being funded, and all the great things going on to improve cars, even if they all happened and bore fruit — it’s still so hard for there to be enough new efficient vehicles to make a dent.  And this is even more so because cars are being built better, and last longer, and so are being turned over more slowly than ever before.

I’m over here in Berlin for the Solar Paces 2009 energy conference. It sure feels like Germany in particular, and Europe in general, both are taking renewable energy and efficiency much more seriously than we do in America. They are making bigger investments, and discussing plans on a bigger scale than I hear in the United States. I wonder if it’s because their economy is better, or do they care more, or do they understand the problem differently? As the conference here proceeds, I look forward to a better understanding of the best solutions that people propose.

By all measures, cash for clunkers has been a wild success.  More than 700,000 cars have been sold in about 3 weeks.  Even though some claim that only 200,000 of those would not have been sold at some point otherwise, that’s still huge.  And all of this has cost $3B of taxpaper money.

The leverage, however, has been huge.  If the average sale is $20,000, and the average rebates is $4,000, there’s a 5x multiplier on a boost to the economy.  I don’t know what other stimulus funds have had a 5x boost.

I strongly feel we should reduce the cash for clunkers fee to $2,000 for two months, and then $1,000 for two months and allow up to $5B or $10B more, since we can then get 10x or 20x multiplier at that reduced amount.

I feel that we need to find more of this kind of stimulus – if we are going to provide stimulus at all.  We gave $50B to the car companies immediately and got nothing like this bang for the buck – for less than 1/5^th that amount we could do so much more.

Am I missing something here?  I’d love to hear what any downside of this could be.

Earlier this week, we launched a first-of-its-kind solar power plant.  It’s a solar power tower, the only one in the United States, and it is unique for a few reasons.  First of all, it uses 24,000 tracking flat mirrors, as opposed to a small number of curved mirrors.  This allows the plant to use less steel, which makes it more cost effective.  In return for using less steel, the plant requires more software, which was very expensive to develop, but once developed, replicating it is nearly free.

You can read more about it and see pictures at http://www.esolar.com/

Here’s a new twist to my post below on a $100 floor price of oil.

Creep up the floor price.  Imagine something like a $5 rise in the floor per quarter, and leveling off at some point, maybe even at $150/barrel.

Several important reasons for this twist:

1. it would gradually phase in the pain (even though all the money should be given back in the form of lower taxes elsewhere — I propose this should be tax neutral.  The only purpose should be encouraging different use patterns and stability and predictability.

2. it would be a dramatic boost to the car industry.  Here’s what I learned about the car industry since I wrote my last post on this: the car industry needs predictability to succeed.  The wild volatility in the price of fuel is what causes the making of the incorrect car models and the extra car inventory that is so harmful to the car industry.  There is no other industry where the swing in the price of an outside substance — not under the control or predictability of the car industry — affects the demand / value of its product so much.  Here’s what I heard from the CEO of Auto Nation at the WSJ:EcoNomics conference — when gas prices went from $2 to $3, to $$ and then back down to $3 and then $2 last year, he said that the value of a used Prius went from $15,000, to $20,000, and then to $25,000 at $4.  Then it went back down to $20k, and $15k on the way back.  It was completely symmetric on the way up and down and swung $10,000 (or more than 40% in value) just by a $2 swing in gas prices.  Think about this.  You are a car company planning to invest $1B or $2B to make your car making decision 3-4 years out and there’s something you don’t control that can make the value swing more than $10,000, or more than 6x your profit on that product!  That’s insane, and unsustainable, and in fact, look what happened in that experiment.

Therefore, I think that it’s not even price of gas that matters, it’s just knowing with some stability what it will be, and if you took the current $50/barrel and just slowly phased in a $5/barrel floor increase, so it would be $70 in a year, $90 in two years, and so on, that would give an underlying hugely valuable signal to the market (both customers AND manufacturers).  Let me know what you think of this idea.

Thanks,

Bill

Here’s a very bold idea on how electricity should be priced that I believe could completely change the world in several positive ways.

It would be the first, global, progressive pricing scheme that would give “life-line” like service to all in need of the freedom and convenience of basic electricity.  Second, it would, at the same time, provide the incentive for renewable energy to blossom, in an extremely fair and global way.

The idea is this – take the lowest possible electricity price anywhere on the planet, about $0.03 per kilolwatt hour, and offer that rate to everyone on the planet, for their first kilowatt hour (per month, per person).  For each doubling of usage, increase the rate $0.01.  So if you use 2 kilowatt hours per month, your rate is $0.04.  For 4 kilowatt hours per month, per person, your rate is $0.05.

On a blended average basis, rates would not rise for any consumers basic consumption.  Only for very large consumption would rates rise slightly.  However, the large consumption rise would allow a fast payback on renewable energy installations, and utilities would know a fixed rate that they could earn for expanding usage and demand, and this would allow much greater deployment.

If the entire world could both stabilize and articulate an increasing rate like this, then that knowledge and stability to providers would encourage tremendous innovation and investment to meet the need.  Right now, in many places of the world, electricity is subsidized to be so inexpensive (Governments fund this by taking a loss) that it’s impossible for renewable to compete.  The intent is to provide affordable power to lower-income, smaller users.  But with fixed pricing, renewable competition is eliminated.  Logarithmic pricing would fix this and allow both – affordable power and unsubsidized renewable competition.

A while ago, when oil was at $140 per barrel, I suggested that we set a floor price of $100 / barrel so that if there was ever a shock spike lower, we could achieve two things.  First, we could raise a lot of money to offset taxes, and now, with the economy in such trouble, to help out.  Second, we would make sure that there was never a short-term blip to discourage long-term investment in alternatives.  I’m afraid that might be going on right now.  I never anticipated such a dramatic economic decline like the one we are in right now.  I think people are therefore finding relief at the pump a welcome thing right now.  However, I think this could be deceptive as we bask in this short-term effect.

Had we instituted a $100 floor price of oil, just since the middle of September, when oil went below $100, we would have raised nearly half a billion dollars a day, or more than $33 billion so far.  That’s nothing to sneeze at, even in this new era of huge numbers we hear about.  Plus it would be continuing to pile up at more than $1B per day right now.  In addition, we would have no fear that investments in the future would not pay back at a particular rate, because of the certainly of minimum $100 / barrel oil.

On the one hand, I find it hard to bring myself to suggest people should be paying this extra price right now, but actually, I feel it’s the right thing.  Why?  Because with any good strategy, there is by definition a trade of a short-term loss in return for a long-term gain.  In this case, I feel setting a floor price of $100 (or any reasonably high number) is medicine that will definitely make the patient healthier in the long term.

I suspect there are people who would disagree.  I would love to hear what you think.

Thanks,

Bill