Cheaper faster better, p.17
Cheaper, Faster, Better, page 17
“Okay,” I said, “but it seems to me that these guys are kind of, you know, poisoning people. Do you really want to be involved with that?”
He looked at me like I was nuts. In a way, I was. He was very good at investing, which meant that his analysis about the stock was probably correct—as far as it went. And because of the incentive structure in investing—the better your returns, the higher your compensation—I was basically asking him to take a pay cut in exchange for doing the right thing. In the end, he dismissed my concerns.
But the story doesn’t end there. Years later, when I was running for president, I spent a lot of time in Iowa. I learned that Iowa has the second-highest cancer rate in the country, and it’s because of the agricultural runoff. Inevitably, all the toxic insecticides and fertilizers farmers put on crops find their way into the water supply, and people drink the water, or their skin comes into contact with chemicals, and they get cancer. On one of my visits to the state, I went to the farm of a very successful industrial farmer who used all the latest chemicals, and the very last thing he said to me was, “I have cancer.” He was just sixty-two years old. Not long after that, I was talking with my former partner—the one who’d thought Monsanto was a good buy—and I told him this story.
“What kind of cancer?”
“Non-Hodgkin’s lymphoma.”
“Oh, that’s no big deal, it’s treatable. What’s your point?”
Eighteen months later, the farmer died.
I can’t think of a better warning about the dangers of unrestrained capitalism. Sometimes markets create an information revolution or pull families out of dire poverty. Other times they can lead someone to dismiss the plight of a farmer with cancer.
Or to expand the fossil fuel industry.
For decades, the incentives to extract oil and gas were the same as those that compelled my colleague to buy Monsanto. People loaned money for new drilling projects, or founded start-ups to make the fossil fuel industry more efficient, or advised autocratic governments of petrostates, or took jobs at oil and gas companies—not because they believed in fossil fuels in an ideological sense, but because oil and gas made tons and tons of money, and getting your hands on some of that money was a very effective way to buy a bigger boat. In a world powered by human kindness, clean energy would have replaced fossil fuels a long time ago. But in our world, in which large-scale trends are driven by markets, fossil fuels had a clear advantage for a very long time.
That’s changing fast. In many cases, it’s already changed. And as climate people, we need to make sure that the tables turn even faster. How can we shift the incentives so that even the most self-interested people make choices that help stabilize our planet and prevent human catastrophe? What does climate capitalism look like?
The way I see it, we’ll need four things: better tech, better ideas, better rules, and better metrics. Each of the final chapters of this book will be devoted to one of these necessities.
Let’s start with tech.
For a long time, a lot of people in the climate movement felt that the key to succeeding in the marketplace was to get people to pay a so-called “green premium.” There were two related versions of this idea. The first was that people would pay extra for products that are good for the planet because they want to demonstrate their commitment to the planet, the same way someone might pay extra for cage-free eggs because they care about animal welfare. The second was that because burning fossil fuels comes with enormous long-term costs—including what economists call “externalities” such as disaster relief or damage to public health—we should be willing to pay higher upfront prices for clean energy and green products because they come at a lower cost to society over the long run.
I fundamentally disagree with the premise behind both these versions of a green premium, for two reasons. First, in a competitive world, selling more expensive stuff doesn’t work. Some people might have the interest, and the disposable income, to pay extra for products because they care about the planet and want to demonstrate that commitment through their purchases. But that’s another version of kindness, and as admirable as it may be, it won’t scale. Getting to net zero will require transitioning the entire world away from fossil fuels, and that means making clean energy and cleantech the least expensive option. Along the same lines, externalities are real—economists should continue to measure them, and policymakers should take them into account. But if we want a real shot at stabilizing at our planet, we have to compete on sticker price.
My second problem with the idea of the green premium is that it implies that such competition isn’t possible, that cleaner automatically means more expensive. That’s not true—and it’s becoming less true every day. Just look at the American coal industry. While policy has at times had an impact, and advocacy, particularly the Sierra Club’s “Beyond Coal” campaign, has accelerated existing trends, the real reason we haven’t built a new coal-fired power plant in years and that the number of coal miners has shrunk from over 215,000 in the 1980s to fewer than 40,000 today is pretty simple. Coal got too expensive. Cleaner energy won in the marketplace.
Unfortunately, that cleaner energy was still pretty dirty—for the most part, we transitioned from coal to natural gas, which (due to the methane leaks I mentioned earlier) is nearly as bad, and sometimes even worse, than coal. But what natural gas did to coal, renewable energy can do to oil and gas. In fact, in many places, the cheapest form of electricity is now solar or wind. Many of the cheapest, best vehicles are electric, too. And that’s not even taking into account the massive taxpayer subsidies that the oil and gas industry receives.
Back in the 1800s, Ralph Waldo Emerson wrote that if you can build a better mousetrap than your neighbors, the world will beat a path to your door. The same idea applies when it comes to energy, and things that use energy. If we can build better, cheaper stuff, people will buy it. And if that stuff happens to protect the planet, improve the quality of life for everyone, and prevent hundreds of millions of needless deaths, we can harness the power of capitalism for good.
That thinking is what led Kat and me, almost immediately after the Alaska trip where we saw the vast empty space where a glacier had been, to Stanford University. For decades, Stanford has been on the cutting edge of tech, not just funding groundbreaking research, but turning that research into technology and products that succeed in the marketplace. Google, Yahoo, and Snapchat are just a few companies that began there. The IT revolution scaled because of market capitalism, but the seeds were planted at Stanford University.
We asked the president of Stanford, John Hennessy, “Why can’t we do for cleantech what Stanford did for IT?” We then gave Stanford a $40 million grant to create a program to fund innovative ideas. Because it was a grant, not an investment, we knew we would never see a dime from any companies that emerged from the research of the grad students and professors we supported. But today, that $40 million grant has led to businesses with over $6 billion in value. Here’s just one example:
Today, in the United States alone, there are about three million tractor trailers that run on diesel, not to mention millions more small- and medium-duty trucks. Diesel fuel consumption accounts for about 25 percent of the overall carbon pollution from the transportation sector. But electrifying trucks is difficult, because the batteries required to power them would have to be really big (at the moment, anyway). In 2016, fellow doctoral students BJ Johnson and Julie Blumreiter came up with a solution. Instead of trying to replace diesel engines entirely, their company, ClearFlame Engine Technologies, modifies existing diesel engines so that they can use renewable fuels like ethanol and methanol. A ClearFlame engine keeps 80 to 90 percent of the components from the original engine, and trucks that use their engines can cut their carbon emissions almost in half. It’s a win for truck owners and drivers, too, because ethanol is cheaper than diesel.
Over the last few years, through Galvanize, Katie Hall, my partner at Galvanize, and I have also invested in plenty of companies that didn’t have their origins in Stanford research. One of them, Alcemy, aims to revolutionize the way we make concrete. Concrete is a huge—and often overlooked—source of carbon pollution. This is a particularly challenging issue because countries that are lifting their people out of poverty tend to build a lot of buildings very rapidly, and thus use a lot of concrete. It had long seemed that we would have to choose between prioritizing a livable planet or prioritizing livable buildings in developing countries. Alcemy wants to change that. The founders, Leopold Spenner and Dr. Robert Meyer, use machine learning and control technology to make predictions about cement mixtures and their ingredients. Its software allows concrete producers to lower their carbon content while maintaining, and in some cases improving, the quality of the finished material.
Of course, for every company I’ve helped support in some way, there are countless others I’ve had nothing to do with. I’m just glad they exist. For example, in the 1980s, Donnel Baird’s family immigrated to the United States from Guyana, moving into a small one-bedroom apartment in Brooklyn without functioning heat. In the winter, his parents would turn on the kitchen stove and oven for warmth, opening the windows to let out the carbon monoxide. It’s hardly surprising that Donnel became keenly interested in the science and business of heating and cooling buildings.
But when Donnel joined the Obama Administration to help run a multi-billion-dollar effort to retrofit old structures, he concluded that the program, while well-intentioned, didn’t work. The problem was that every building was different. It took a lot of time and money to figure out what changes were needed, and even with federal subsidies, landlords balked at the cost. So he started a company, BlocPower, which uses custom-built software to inexpensively create a digital model of nearly any building and come up with a customized solution. With a focus on buildings in low-income and underserved neighborhoods like the one Donnel grew up in, the company installs all-electric heat pumps to replace the ones that burn oil and gas. Best of all, BlocPower pays for the entire upfront cost of the investment. Building owners pay back Donnel’s company over time, but because their utility bills are so much lower with the new heating systems, they still save money each month.
That’s what winning in the marketplace looks like. Not just cleaner. Cheaper and better, too. If you own a truck fleet, a concrete mixer, or a residential building in New York City, it doesn’t matter if you care about climate change or not. Upgrading to cleantech is just business common sense. To put it another way, if you want to stick with fossil fuels, it will cost you more than switching to something cleaner.
That’s one reason the green premium idea is misleading. More and more often, companies and consumers can cut emissions without paying extra. In fact, in a growing number of cases, they’ll have to pay a polluters’ premium to stick with fossil fuels.
The fossil fuel industry knows that the tables are turning. Increasingly, products that are helping us stabilize the planet aren’t just better for the public at large than their oil-and-gas-powered counterparts—they’re cheaper and better for individual customers, too.
Which is exactly why fossil fuel companies and their allies are trying to mislead the public now—before the adoption of clean-energy-powered products becomes widespread enough that everyone discovers they like them.
In 2023, for example, the National Review published a big story called “The War on Things That Work.” The author, Noah Rothman, warned that scary environmentalists want to take away all your household appliances, from your gas stove to your air conditioner to your lawn mower, and replace them with electric junk that will break. “Armed with unchecked self-confidence and possessed of an abiding faith in the idea that you must be coerced into altruism,” he wrote, “the activists seem to be coming for almost everything you own.” This is total nonsense, but when people associated with the climate movement spend all their time talking about how much more expensive saving the planet is than burning fossil fuels, it makes the war-on-things-that-work argument seem much more convincing than it should be.
In fairness to Mr. Rothman and the National Review, not so long ago the environmental movement was mostly asking people to make sacrifices: drive less; fly less; install expensive solar panels. For some people, knowing that their travel or hot water or electricity wasn’t harming the planet was worth the extra cost. But for most people, it wasn’t. People wanted to buy things that were cheaper, better, and ideally both. For many, that meant buying oil and gas—or products that needed oil and gas to work.
But the National Review’s spin ignores what is, for them, an inconvenient truth. “Green” technology and products are no longer pie-in-the-sky ideas. People aren’t buying them because they’re liberals. People are buying them because they like getting more bang for their buck. Or to put it in the National Review’s terms, even without the massive, nonstop bailout the oil industry receives when taxpayers pay to clean up its mess, the “things that work” happen to be the things that work for the planet.
One of the most obvious, widespread examples of this involves solar panels. In 1979, when Jimmy Carter became president, he put solar panels on the roof of the White House. It was a virtuous gesture—the panels were clunky and expensive to install, and any electricity they generated would have been wildly expensive. At the time, solar energy cost roughly fifty times as much as energy generated by fossil fuels. When Ronald Reagan took office, he ripped out the solar panels as a demonstration of his commitment to putting free-market economics over bleeding-heart lefty values.
Today, millions of American homes, including the White House, rely, in whole or in part, on solar. The cost of solar panels has fallen by 99 percent since 1977. Rooftop solar isn’t just cleaner than traditional power, it’s far cheaper. Some solar companies have made solar installation basically free, by using the money homeowners save on cheap solar energy to pay for the panels themselves. In other cases, homeowners are actually making money via solar, by selling energy back to the power grid. On average, solar is now 33 percent cheaper than natural gas.
That gap in price is almost certain to keep growing, because prices for new technologies tend to go down much faster than prices for things that have been around forever. (Think of what’s happened to the cost of a gigabyte of computer memory over the last two decades versus what’s happened to the cost of a book. The former has gotten more than one thousand times cheaper; the latter has gotten more expensive.) The price of oil shoots up every time the cartel that includes Russia, Saudi Arabia, Iran, and other petrostates decides to artificially cut supply. Meanwhile, solar just keeps getting cheaper. Batteries continue to improve, too, making solar more reliable and increasing the amount of energy that can be stored and sold.
If Ronald Reagan wanted to champion free markets today, he wouldn’t be ripping out solar panels—he’d be putting them in. It’s the fossil fuel people, not the climate people, who are asking customers to pay a premium to support their political agenda.
Now imagine the same trends that have already transformed the market for household energy transforming the market for everything. That’s what’s happening right now. In some cases, the economic equation hasn’t yet flipped—for example, green hydrogen, a zero-emissions fuel that could power trucks, cargo ships, factories, and even airplanes, is still more expensive than fossil fuel. But we can see where things are headed. In a large number of other cases, unless you happen to love the fossil fuel industry and want to increase oil and gas companies’ profits, there’s no reason to keep using obsolete technology. It costs you, the customer, less to buy an electric vehicle than a gas-powered car, and it’s much, much cheaper to maintain one, since you have far fewer moving parts that can break. It’s cheaper to heat your water with electricity than with natural gas. It’s cheaper—not to mention more convenient, quieter, and safer—to run your lawnmower or power tools off a battery instead of gasoline.
Yet for all the promise of the cleantech revolution, I want to sound a cautionary note: innovation alone is not enough to win in the marketplace. A viable business is very different from breakthrough tech.
A big mistake that people make throughout the private sector is thinking that success is all about the product. They imagine a straightforward competition: “Jill’s tech is a 93 out of 100, and Jack’s tech is an 87, so Jill wins.”
That’s not how it works. A friend of mine who started an electric vehicle company around 2010 insists that in terms of building batteries and other tech basics, Tesla is only now getting to the place his team reached fifteen years ago. But it doesn’t matter, because my friend’s company is defunct. He couldn’t raise the money to keep going, and Tesla, for whatever reason, could. The ability to win people over—to have a vision, to sell, to keep going through tough times—is every bit as important for succeeding in business as having a low-cost, viable product. Which is all the more reason for people from all walks of life to join the climate movement. If you’re a brilliant researcher who can summon technological breakthroughs seemingly from nowhere, it’s probably not too difficult to figure out how you can become a climate person. But if you’ve worked at any business at all, we need you, too. I know from my own experience that starting one’s career outside the climate world can be a huge asset when you’re ready to join the fight and help stabilize our planet.
Climate people aren’t the ones asking their neighbors to sacrifice for the sake of the greater good. We’re the ones creating incredible new businesses that help our neighbors get better stuff for less money. It’s the fossil fuel industry—and its hangers-on in the media—who, for purely ideological reasons, are desperate to make people pay for products that are more expensive, less reliable, or both.
Remind me again who’s waging a war on things that work?
