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Gates: Invest in Innovation to Make Clean Energy Cheap

gates_innovate_to_zero.jpgIn a new interview with Technology Review, Bill Gates nails the global energy and climate challenge and discusses the need for dramatic increases in energy R&D funding to make clean energy cheap.

Bill Gates has been speaking out publicly over the last few months–first in a blog post on his website, then in a talk at the TED conference, and now as part of the American Energy Innovation Council–for radical energy innovation to drive carbon emissions to zero.

In a climate discourse dominated by emissions targets and carbon caps, Gates has provided a refreshing and clear-eyed look at the first-order importance of direct public investment to develop clean, affordable technologies to replace fossil fuels on a global scale.

In this new interview, Gates discusses why dismissing the difficulty of the challenge is counter-productive, and argues that carbon pricing can never drive the dramatic innovation required to transform the global energy system. Instead of raising the price of fossil fuels, Gates argues that the time has come to shift our attention to raising the revenues necessary to fuel innovation and make clean energy cheap.

Below the fold, you can find excerpts from Gates’ interview, which can be read in full here.

For more, the NYTimes Andy Revkin and TIME magazine’s Bryan Walsh each spotlight the interview here and here, respectively.

[MIT Technology Review’s Jason Pontin:] The Gates Foundation has invested in solutions to big problems like infectious diseases in poor countries. Providing clean energy for the nine billion people the planet will hold in 2050 is a problem that’s equally civilizational in scale. What can philanthropy contribute to energy research?

[Bill Gates:] Well, basically not much. The energy market is an absolutely gigantic market, and the price of energy is a key determinant in improving lifestyles, whether for the rich, the middle-income, or the poorest. It seems slightly more intense for the poor: things like fertilizer and transport, or health care, are very expensive for them. You know, things like basic lighting are very expensive. But it’s a big enough market that if you come up with cheap ways of making electricity, then that should be done with typical big-firm risk taking, small-firm risk taking. On the other hand, the way capitalism works is that it systematically underfunds innovation, because the innovators can’t reap the full benefits. But there’s actually a net benefit to society being more R&D-oriented. And that’s why in health research, governments do fund R&D.

You are a member of the American Energy Innovation Council, the AEIC, which calls for a national energy policy that would increase U.S. investment in energy research every year from $5 billion to $16 billion. … I was stunned that the U.S. government invests so little.

Yeah, particularly when you look at the DOE budget, and it looks so big–but the biggest part of that by far is dealing with the legacy of nuclear weapons production at various sites around the country. I was stunned myself. You know, the National Institutes of Health invest a bit more than $30 billion.

The irony is that if you actually look at the amount of money that’s been spent on feed-in tariffs and you properly account for it–tax credits, feed-in credits in Spain, solar photovoltaic stuff in Germany–the world has spent a massive amount of money which, in terms of creating both jobs and knowledge, would have been far better spent on energy research. But it kind of shows up as “Okay, I’m paying a little more for electricity,” which is a very complex, opaque thing. Where you’re mixing in low-cost hydro sources or things that have been fully depreciated with new things that are very expensive, it’s very complicated; when people are actually subsidizing some deployment, they don’t see it as much. Whereas if you say “Okay, we need to raise a tax to fund the R&D,” that’s more explicit.

I was stunned, when I did the work with the AEIC, to see that if you wanted the U.S. energy industry as a whole to fund this R&D, you’d only have to tax energy 1 percent. That is, the amount of tax you’d need to fund the R&D is an order of magnitude less than the amount you’d need to increase the price of energy in order to start to have a strong price signal in terms of efficiency and tradeoffs in new power plants.

The tradeoffs in new power plants you can do through regulation–just say, “Hey, you have to retire CO2-intensive plants at various dates, and you have to replace them with ones that meet various CO2 standards.” So that actually creates a market, in the sense that people have to buy those things.

But it’d take a very small tax to fund even a significant level of R&D increase. And that’s using the term “R&D” very broadly, because in that $16 billion total that the AEIC called for, we had several things that are about pilot-plant deployment and financing. About one-third of it was not in traditional R&D. In energy we need to do the basic research. It’s materials science, it’s modeling, it’s storage, there’s a lot of things.

It is disappointing that some people have painted this problem as easy to solve. There are actually two articles in Scientific American where they allowed the author to say, “Oh, this is easy. Just go do a bunch of compressed air and sun,” or “Just go do a mix of things and it’s easy.” It’s not easy, and it’s bad for society if we think it is easy, because then funding for R&D doesn’t happen. If it was going to be easy, then that money really wouldn’t be necessary. But in my view it’s very necessary, and that’s despite the fact that if you take the innovation economy in the U.S., broadly defined, now versus 10 years ago, there’s a lot more energy activity. There’s many examples of that. You’ve got Silicon Valley, with people like [venture capital firm] Perkins. Vinod Khosla [of Khosla Ventures] was into it early and he’s got an amazing portfolio, but now there are many others doing it.

You’ve talked about the need for “energy miracles.” But we’ve been waiting for such breakthroughs for decades. TerraPower is a traveling-wave reactor, a design that dates back to the 1950s. We’ve been working on energy miracles–and we’ve seen nothing. Wouldn’t we be better off making the energy technologies we have more efficient?

Well, no, we haven’t been working on those things. The nuclear industry was effectively shut down in the late ’70s. And so evolutionary improvements on those so-called Gen 3 designs really didn’t happen. And more radical designs that were measured according to their economics didn’t happen. There’s a lot of paper designs under the heading Gen 4, but most of those are going to be very, very expensive. They’re kind of cool science, but they’re very, very expensive.

But let me get back to the main thrust of your question. The CO2 problem is simple. Any amount you emit causes warming, because there’s about a 20 percent fraction that stays for over 10,000 years. That’s the way the ocean equilibrates with the air on this planet. So the problem is to get essentially to zero CO2 emissions. And that’s a very hard problem, because you have sources like agriculture, rice, cows, that are single-point sources out with the poorest people. So you better get the big sources: you better get rich-world transport, rich-world electricity, and so on to get anywhere near your goal.

And so when people say, “Shouldn’t we do X or Y or Z?”–well, if X or Y or Z gets you a 20 percent reduction, then you’ve just got the planet, what, another three years? Congratulations! I mean, is that what we have in mind: to delay Armageddon for three years? Is that really it? A 20 percent reduction is interesting, and it’s on the way to a 40, 60, 80 percent reduction, but most things that are low-hanging fruit are not scalable.

The U.S. uses, per person, over twice as much energy as most other rich countries. (Put Canada and Australia aside, because they are almost as bad as us.) And so it’s easy to say we should cut energy use by building better buildings and higher MPG and all sorts of things. But even in the most optimistic case, if the U.S. is cutting its energy intensity by a factor of two, to get to European or Japanese levels, the amount of increased energy needed by poor people during that time frame will mean that there’s never going to be a year when the world uses less energy.

In other words, there is absolutely no hope if you just say the world should use less energy. The only hope is less CO2 per unit of energy. It may feel good for people to use less energy, and they should–if individually they can delay Armageddon for about one microsecond, everybody should do that–but you ought to save the political will and the money to make sure you’re doing the thing that really has a chance of solving the problem, and that’s CO2 intensity. And no, there is no existing technology that at anywhere near economic levels gives us electricity with zero CO2.

Then what kinds of energy miracles do we need?

You know, take wind: it’s actually not that far from economical when it makes up the last 20 percent of the energy supply. But almost everything called renewable is intermittent. I also have another term for it: “energy farming.” The density is very low. We have no idea how to take those intermittent sources up to 50, 80, 90 percent. … It just points up that without a storage miracle, you cannot take intermittent sources up to large numbers. In fact, not only do you need a storage miracle, you need a transmission miracle, because the intermittent sources are not available in an efficient form in all locations.

Now, energy factories, which are hydrocarbon and nuclear energy–those things are nice. Well, they have some nice things and some not-nice things. … Unfortunately, conventional energy factories emit CO2, and that is a very tough problem to solve, and there’s a huge disincentive to do research on it. People are willing, but until society decides that the government’s willing to certify storage locations and take the long-term risk and do the monitoring of trillions of cubic feet of CO2, it can’t happen. The complexity of managing, say, 50 years of U.S. carbon emissions–it makes Yucca Mountain look like the most trivial exercise ever contemplated. I happen to think that if you have the political will, the technical problems could be solved.

Let’s talk about policy, then. The prospects for a strong climate bill in the U.S. Congress now look dim. And so do the chances for any binding international treaty. But almost everyone agrees that there needs to be a price on carbon–whether a Pigovian tax [a kind of tax levied on a market activity that generates negative externalities, named after the British economist Arthur Pigou] or a cap-and-trade system. Without a price, there’s going be very little incentive to do the kinds of research, or create the kinds of technologies, or build out the kind of infrastructure, that we need.

No, that’s not right. It’s ideal to have a carbon tax, not just a price on carbon, which is this fuzzy term that includes cap-and-trade.

Well, ideally, you’d do a Pigovian tax–

No, not a Pigovian tax. A Pigovian tax is where you pay for the damage. Here, you’re not paying for the damage–you can’t pay for the damage. You’re using the tax to create a mode shift to a different form of energy generation. You are not paying an amount that allows somebody to suck the CO2 out of the air. Let’s just take the electric sector. If you imposed a 2 percent tax, you’d get the money for the R&D. And then you just take all the carbon-emitting plants, you look at their lifetime, and you say on a certain date this one has to be shut down, and when a new one is put in place, it has to be low-CO2-emitting.

That’s a regulatory approach, and it’s very clear. Remember what this is all about. This is about somebody who buys power plants, and who really buys power plants? Utility commissions really buy power plants. The utilities are really just middlemen who are given permission to actually do these projects. But the decision to get great recovery against rate payers, that’s made by utility commissions. These are the people. And a federal law saying you can’t buy plants that emit CO2 can force the hand of those utility commissions. This is all about plants, and the framework that exists for the 40 years that an energy plant exists. So when anybody that says that we need a carbon tax, if you really want to affect the behavior of the people that buy those plants, you’ve got to have certainty from years 10 to 50.

… You have to do it with something that you believe will stay in place. If you said to a utility company executive, which is more likely to stay in place: a cap-and-trade thing, whose price will vary all over the map, that will have some international things [e.g. offsets] that will be shown to be a waste of money? A regulatory thing about plant replacement over the next 50 years? Or something that’s trying to work through price? Which looks more black and white to somebody deciding to build power plants? The price will have variability: all these schemes do, because they have escape clauses, and they give away free permits to the politically advantaged and create new requirements for governmental revenue.

So I’m perfectly happy with the carbon tax. We should have a carbon tax. It has the advantage that it also immediately sends a signal for efficiency. What we owe the developing world is this: we’re willing to pay high prices for energy plants above coal and drive prices down the curve so by the time they need to buy them, they don’t have to pay the high price. What it costs to have them overpay for electricity is measured in lives. We need to invent electricity technologies that they’ll be able to buy at super-good prices. There are some technologies that could get there. We need to pursue them all.

That sounds very rational, pragmatically feasible, and humane. It also sounds politically unlikely.

Which is more likely: a carbon tax with all sorts of markets and options and uncertainties about prices, and traders in the middle, and confusion about who initially gets the most advantage? Or a regulatory thing that says you mark every coal plant in the country with when it has to be retired, and a 2 percent tax to fund the R&D so that utilities know they can buy a plant that’s emitting hardly any CO2? Because the innovators are designing things for the power-plant buyers 10 years from now, who are looking at the regulatory and tax environment for the next 40 years. So I don’t know if anything will happen. I hope something does, but to be frank, there’s so much money cycling in and out of Washington that a bunch of it goes to fairly inefficient things. I mean, just look at the House bill in terms of the various groups that got free carbon credits. Raising energy prices by 2 percent and sending it to R&D activities seems easier in a weak economy than raising them 20 percent and cycling it through Washington. Now, 0 percent is the easiest option of them all, but unfortunately that doesn’t get us the solution to this problem, which is a long-term problem.

 

Read the full interview at Technology Review here. 

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