Low-Carbon: Venture Capital, Policy - at i4Energy

I was a bit disappointed with John Zysman talk at Citris/i4Energy last Friday (2/19/10) at UC Berkeley, entitled:

 "The Transition to a Low Carbon High Efficiency System: Implications for Venture Capital, Policy, and Climate Negotiations"

I am not a venture capitalist, whom I think was his target, and I did not understand some of the language or references.

And Prof. Zysman announced, a little too boldly, that he is not a scientist or engineer, and indeed I thought his talk showed a lack of data or evidence or causality that I would expect.

And at times I thought he was repeating, in a different vocabulary, what is obvious to all of us:  a change to low-carbon high-efficiency economy is going to be a big change, an "system systems transition."

So why write about this talk?

Because it needs to said, in every possible language and to every possible audience: the old rules must change, and this includes financing.

Unlike the IT/semiconductor revolution, which Prof. Zysman seemed to know well and  referenced several times in which VCs profit (or 'bet') on  'incremental' improvements, such as  transistor density or CPU power to an established base, the move to renewables is anything but clear and will be difference from IT.   It will  not be a bet on a specific product, not a bet on a specific technology, but more correctly:   a bet on whole suite of technologies, which won't work if one technology is missing.

He cited electric cars, for example.   Without a recharge grid, electric cars won't take off.   Without a truly smart grid, perhaps renewables can not take off.   And if you bet on wind, and then solar takes off, where does that leave the VC?

So it is more than a carbon price, more than optimizing an old technology in a new form.  (He cited the problems of building a lighter aluminum engine as replacement for internal combustion engine - tried and did not work.)

He mentioned the semiconductor industry road-map and urged a similar carbon road-map.  He stressed the need for policy to drive technology, i.e. choose a 'trajectory' and not discrete technologies alone, so multiple developments are completed correctly, and in parallel.  The old VC model isn't going to cut it.

And he argued, which we all know, that India and China are pursuing systems change and we are just not a player.

I'd like to see Prof.  Zysman rewrite his talk in a form and language non-VC professionals can understand and not use words with ambiguous meanings to laypeople (paradigm shift, transitions, hedge vs. VC models).   Perhaps he could draw more concretely on past energy transitions, wood to coal, which he said took 100 or so years.  

Then we can appreciate what he is trying to tell us, which may be of vital importance.

And what if the VC model fails?  Energy supply and climate change are world problems.   Surely we should consider that huge pools of capital, talent, ideas can be tapped with different rules.


Announcement
http://www.citris-uc.org/events/i4e-Feb19
Video
http://www.youtube.com/watch?v=p_3JMWJQMiI

Optimism .... Despite No Climate Treaty?

Speaking Friday in Berkeley after the announcement that a binding treaty would not be signed in Copenhagen, Dr. Niels Christian Nielsen gave a thoughtful but cautiously optimistic talk about recent trends that may mitigate climate change. However, he also pointed out there will be "winners and losers" and one loser may be the United States.

Citris is "Center for Information Technology and Research in the Interest of Society", a partnership industry and between UC Berkeley, UC Davis, UC Merced and UC Santa Cruz. Its goal is to spur research developments into viable companies and industries. One of Citris' main themes is "Energy and the Environment".

Dr. Nielsen is a leading worldwide expert on energy and climate change policy. The title of his talk was "Issues and Challenges Leading up to COP-15: The U.N. Summit on Climate Change." His logic is simple but compelling:

First, several parts of the world have already embraced renewable energy and built economies around it. Not mega solar or wind projects, just enough to be sustainable and encourage economic growth. He described a poor area in southeastern Anatolia (Turkey) that wanted wind powered electricity for villages. The Turkish government ordered enough new mid-size (75kW) high-performance turbines and asked the manufacturer to build some of the turbines in region. The manufacturer agreed.

The Turkish government ordered solar-powered pumps for drip-irrigation, and asked the manufacturer to build some of the pumps in region. A manufacturer again agreed. Next, the government asked textile makers if they wanted organic cotton and partnered with them.

Dr. Nielson's point is Turkey is a first adopter and is making economic progress while being committed to renewable. Parts of Chile and Argentina have similar programs to build their economies.

And in his native Denmark, if today every Dane had an electric car, the country now has sufficient wind energy infrastructure to recharge all the car batteries - at night and without adding one more turbine.

These areas could be the 'winners.'

His second reason for optimism is a shift in corporate thinking about climate change. Rather than sending lobbyists to Washington, corporations are now seeing a greater strategic 'risk' in the climate change 'uncertainty.'

This is not about 'corporate responsibility;' it is about a giant insurance company worrying about its core liability. Or about Siemens and GE, which joined in the past few weeks in a call for climate 'clarification' because they can not do long-term strategic planning. Dr. Nielson sits on 12 boards and said this trend is isn't just Google or Ben & Jerry's; it is new and about companies like IBM, Intel, BP, Shell, i.e. mainstream corporations. And, of course, the companies see opportunities in renewables.

The third reason for optimism of global action is China. They have been a 'brilliant' negotiator, in solidarity with developing countries and in solidarity with BRIC (Brazil, Russia, India and China):

We in the US use 5 times the energy per capita as the Chinese (and twice EU or Japan). Are we going to cut consumption or is China going to cut growth?

There are some 170 countries who are already to make a treaty, many simultaneously preparing their infrastructures, but they will sign only if the developed countries who made this mess act first.

Dr. Nielsen didn't say it, but the implication is the worldwide pressure on the US is going to become intense.

Which brings this to the final point, winners and losers. Turkey, Chile, Argentina, Denmark and others who make the leap to renewable sources will be poised to grow economically. And China.

China has 'gotten religion.' They certainly do have a polluted country; they are opening a new coal-fired electric plant almost once per week and they do make mistakes, but they are also committed - at the highest levels - to developing a leadership position in batteries, electric cars, smart grid and renewables. By leadership, Dr. Nielsen means they may come to dominate whole industries in the way the US dominates in IT: jobs (white, blue & green), investment, expertise, markets, marketing, security, research and development - but manufacturing alone.

The United States is "playing a weak hand very badly." Every day that Congress does not act on climate treaty, or developing renewable infrastructure, or stimulating demand for non-fossil fuels is a day we will not get back.

On the one hand, he is optimistic a fundamental change is underway with renewables and corporate attitudes climate change. But, on the other hand, there will be "winners and losers." Where do you think the new Texas turbines are being built? (Ask me about Shenyang, China.)

We are close to the 'tipping point' where the US will not be able to catch up and the ramifications for this country will be enormous.


Citris Events

Video of Dr. Nielsen's talk