Creating Climate Wealth: Unlocking the Impact Economy
The following is an excerpt from chapter six of the book, "The Role of Government."
Creating Climate Wealth: Unlocking The Impact Economy
208 pages, ICOSA, 2013
“Creating Climate Wealth: Unlocking The Impact Economy” is a new book by Jigar Shah, founder of the largest solar services company, SunEdison. Shah internationally recognized for revolutionizing the now multi-billion-dollar solar energy industry, tells how a business model, the power purchase agreement, unlocked the massive potential of the solar industry. He explains that rather than waiting for yet to be developed technology, business model innovation is the key to attract mainstream capital to unlock transformational change in other business that will stave off the impacts of climate change. Shah makes a compelling case for reaching our 2020 climate change goals through, his “100/100 Plan”: 100,000 companies worldwide, each generating $100 million in sales. Visit the website here.
“We cannot cede to other nations the technology that will power new jobs and new industries. We must claim its promise.” —President Barack Obama, Inaugural Address, January 21, 2013
It is not practical to talk about tapping into the enormous climate wealth market that infrastructure represents without talking about the role of government. Even if there are no subsidies, government sets the rules and often has to provide permission in the form of permits.
For practical purposes, let’s examine a real example in the United States. In 2012, President Obama was elected to a second term in office. Since his first election in 2008, the president has mentioned infrastructure as one way to get blue-collar workers back to work and America back to prominence. His approach so far has been to have EPA regulate pollutants and have Congress allocate money for projects. Still, there are many more things that he could do if he and his administration optimized how mainstream capital works.
There are enormous climate wealth opportunities and challenges in three areas worth noting: mobility (transportation), energy (electricity), and water. We need only look at the devastation after Hurricane Sandy to truly understand firsthand our extensive dependence on transportation, electricity, and water.
I am an entrepreneur, and I believe that the “controlled chaos” of free markets drives economic growth. Government is the control, and entrepreneurs create the chaos. To be clear, these are distinct roles. When government becomes a player—think about the investment into Solyndra, the solar panel manufacturer that went bankrupt after a $500-million-plus infusion of capital from the US government—it does not work. Yet government is needed if we are going to effect the necessary changes to drive climate wealth business growth and improvements in these sectors. And the sectors are too important not to have government oversight.
First and foremost, we need a plan. “All of the above” is not a plan. It is a recipe for confusion. It lacks the focus and clearly articulated goals that a plan entails and leaves too many questions unanswered. Government must be clear about what the priorities are when it comes to these essential areas so that everyone understands in which direction we are going. Imagine if we had built the US interstate system in the 1950s and 1960s without a government plan.
It is really essential that the government serve as a point of coordination—almost a fulcrum—for these efforts. In optimizing our climate wealth opportunities, infrastructure funders, governments, and key decision-makers are not yet all on board. This type of infrastructure development is complex and requires all the key players have consistent and equal participation at all times because any one of them can scuttle a deal. (This is why it is so complicated. No one side really has control.)
An example I cited in a Fast Company article was SEMATECH. Conceived in 1986, SEMATECH began operating in 1988 as a partnership between the US government and fourteen US-based semiconductor manufacturers. The goal of SEMATECH was to solve common manufacturing problems and regain US competitiveness over Japan. Today, its members represent about half of the worldwide chip market. When government strategically engages with the private sector, we can accomplish great things, and SEMATECH is a brilliant example.
How do we start? How about we convene? This is how government draws focus. It will pick a topic and convene thought leaders, business leaders, and the right mix of people from government to think through some of these challenges and come up with some standards. We have a very difficult time advocating for solutions when there are no standards for comparison.
Also, streamlining some of the regulatory challenges that entrepreneurs face is a huge need that government could fulfill without spending any money. “The valley of death” that some entrepreneurs face while they deal with various regulatory hurdles as they try to launch their companies is staggering. It could easily be addressed if the key market makers, entrepreneurs, and government leaders meet with a mindset that they are going to make a positive difference in unlocking the regulatory hurdles that face climate wealth.
What next? Create a plan or a roadmap. People like to be able to see and articulate shorter- and longer-term milestones when it comes to large initiatives such as these. What is success in five years? Ten? We need benchmarks to chart progress. We need accountability and ownership, and, above all, we need the will to follow through.
There are some obvious examples, I think, that would be easy to look at initially. For one, government can and should make it clear that meeting the renewable portfolio standards and efficiency standards that states have already approved will not destabilize the grid. This myth remains active and is used by many as an argument against progress. Government could create a working group that would focus exclusively on the lowest-cost path to implementation for the states to help move this along. Demonstrating action and accomplishment quickly would go a long way to bolster confidence.
We also see now the vital importance of grid infrastructure resilience in the wake of Sandy and other destructive disasters. The Public Service Commission needs guidelines on how to do this, much as we fortified our data and security systems after 9/11. This is a matter of urgency. In President Obama’s inaugural address, he said:
We will respond to the threat of climate change, knowing that the failure to do so would betray our children and future generations.
Some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires, and crippling drought, and more powerful storms. The path toward sustainable energy sources will be long and sometimes difficult. But America cannot resist this transition. We must lead it.
We cannot cede to other nations the technology that will power new jobs and new industries. We must claim its promise.
Clearly, the US government and the Obama administration see our future for jobs and the economy directly linked to addressing our climate issues. So my point here is that we can turn this rhetoric into a new climate wealth reality.
Another area where attention by government is needed is on our drinking water facilities, which, according to the American Society of Civil Engineers, are in need of $55 billion in investment to bring them up to par. The water authorities have taxing power, so raising this money is not difficult. But implementing next-generation technologies to minimize rate increases is very difficult. There must be a plan or pathway for this gross underinvestment that would help us to implement technologies we ourselves invented.
I also strongly believe that fuel choice should be the other half of the equation. The hegemony of oil over all other transportation fuels must end if we are going to make progress. This is tough for many to swallow, but government must lead on this and come out in word and deed to level this playing field.
How can they do that? I have said it many times, and some are surprised, but I believe we must put an end to confusing subsidies for mature and legacy industries. Large fossil fuel companies continue to corner the market because of strategic subsidies that are not expensive but that shift the dynamics such that others cannot compete. Fossil fuels are not the only ones. There are other mature industries such as solar that benefit now. But if the game were fair and (again back to the notion of standard creation) if consumers could compare their options with equal and fair standards, I believe they would make different choices. Solar does not need subsidies to be successful, as we are seeing, but taking away unfair competition would help in many areas. In other words, may the best solution win on its own merit.
California, Germany, and Japan have shown us how smart legislation and policy can help. New technologies can scale quickly with some government support and then sunset (end) the government provisions after some reasonable period of time. This will eliminate an endless expected government support for an industry. Gasoline for fuel transportation does not need to be subsidized. And if gasoline were ten dollars per gallon, consumers would demand other fuel options for transportation—and the economics would change.
People do understand that new technologies sometimes need a kick- start to get going, but in these austere fiscal times endless support provisions are not palatable, and they are simply not fair. If the new ideas scale correctly in the provided time, they won’t need the help. And if they don’t, the market will dictate their demise.
Finally, government needs to lead by example here. The federal government is an enormous customer with huge buying power. It should be leading the way as a first mover wherever possible. For example, government buildings, land, and other assets can be used to demonstrate how, and if, these new solutions can be cost-efficient, energy-efficient, and reasonable to implement. The government is one of the largest energy users. It has the ability to create market demand by making some of these choices, showing the way for states and other large consumers as well as for individuals.
Other simple examples include the government’s ability to use additional free market tools such as the Super Energy Savings Performance Contacts, power purchase agreements for electricity generation, and other proven structures to unlock the $150 billion in federal government purchases for electricity, mobility, and water.
I have said it before: infrastructure investment is the largest wealth creation opportunity on the planet—and today’s opportunity is in climate wealth creation. Globally, the World Bank estimates it to be at least $35 trillion over the next twenty years, and here in the United States it is believed to be more than $2.2 trillion. We cannot leave that on the table. But to really get climate wealth moving, we require leadership from the government. This is not a partisan issue; this is an economic issue. There is room for many perspectives, and in fact we benefit from both sides in the sense that Republicans feel business should be unencumbered, and Democrats feel government has a role. It is, as I said in the Fast Company article, not so much a balance of power but rather a balance of control and chaos. We can achieve this balance. We must. And government can lead by example.
Excerpted from Creating Climate Wealth: Unlocking the Impact Economy by Jigar Shah. Copyright © 2013. With permission of the publisher, Icosa Publishing.