A transcript for
The Silicon Valley Leadership Group
Panel Discussion, ―Electric Bills and Oil Spills‖
Moderator, Ms. Barbara Marshman, San Jose Mercury News
Held in Charlie‘s Café at Google
August 10, 2010
Panel members as listed in program:
Mary Nichols, Chairwoman, California Air Resources Board
Vinod Khosla, Leading Venture Capitalist, Khosla Ventures
Bill Weihl, Green Energy Czar, Google
Tom Bottorff, SVP, Pacific Gas & Electric Company
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2 Dr. Weihl: …strongly behind the ―No on 23‖ campaign. I‘d like to thank Carl Guardino and the
3 Silicon Valley Leadership Group as well as the Clean Economy Network and a number of others
4 for their leadership on this campaign, and, since you‘re going to hear a little more from me in a
5 little bit, you don‘t need to hear from me right now. Let me turn it over to Carl. Carl, thank you!
7 Mr. Guardino: Bill Weihl, and all of our partners at Google, thank you for your incredible
8 leadership, not only on clean-and-green and renewable-energy issues, but all the innovation that
9 you‘re driving throughout the world. It is an honor to be back at Google.
11 How many Googlers do we have here today? In the back of the room! Thank you very much for
12 joining us and being here today, and the rest of the Silicon Valley community that we‘re joined
13 with today – more than 400. We had to cut off the RSVPs, but that means we want you to
14 Facebook about it. We want you to Twitter about it. We want you to continue to get the word out
15 about this important issue, because make no mistake. In 2006, when Gov. Schwarzenegger
16 showed tremendous bipartisan leadership in signing assembly bill 32, the Global Warming
17 Solutions Act, it was a marker. It was a stake in the ground that California will continue its
18 leadership knowing that it is never an ―either/or‖ choice when it comes to the environment and
19 the economy, when done right, as AB 32 does. It is an ―and.‖ A strong economy and a clean
20 environment go hand-in-hand.
22 We know that in Silicon Valley intuitively, where we‘re inventing the future; but we don‘t
23 always have an easy time getting that message out around the rest of the state, and truly, not
24 around the rest of the nation, and that‘s where all of us come in. So we‘re glad you‘re here today,
25 but it‘s incumbent on me to also invite you to something we have to continue, this same
26 conversation around California‘s economy, environment, and future on September 16th at Santa
27 Clara University.
29 So if you walked in and just plopped right down and felt something other than chair, this is what
30 you sat on. It‘s last year‘s Projections report. This year, on September 16th at Santa Clara
31 [University], we‘ll be releasing our 14th annual Projections Report at a summit of 600 valley
32 leaders. We‘d like you to be one of them. So, in addition to last year‘s report, as a gift, is an
33 invitation to this year with the information on how to register.
35 We have an amazing panel today of energy leaders, innovation-economy leaders, and climate-
36 change experts to discuss AB 32, but in the context of what‘s going on in California as citizens
37 and voters, as well, because if you flip 32, you come to 23, and Proposition 23 on the November
38 2nd ballot in California is an effort by two Texas-based oil companies to undo the progress we
39 have made here on a clean energy future for California. And they‘re doing it in a very interesting
40 way, saying it‘s the ―jobs initiative‖ for California.
42 Well, the main jobs that have been created since 2005 during the recession in California have
43 been in the clean-and-green and renewable-energy space, and yet they are trying to twist that,
44 and we cannot let them. So that‘s the context for today‘s policy—not political—discussion about
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45 the implementation and the need for Assembly Bill 32. With that, we‘re honored to have as our
46 moderator for this interactive conversation with you, in which you will be an active participant
47 through the cards available to you, is the editorial page editor of the San Jose Mercury News, the
48 newspaper of Silicon Valley, Barbara Marshman.
50 Ms. Marshman: Thank you, Carl. (loud applause) …Could our panelists come up, please, and
51 take your seats, and we‘ll get things under way. I‘m really looking forward to this discussion,
52 because the Mercury News Editorial Board has always supported California‘s climate-change
53 legislation. We‘ve been intrigued that Silicon Valley seems to be so behind it, when a number of
54 business—generally, pro-business—political leaders are…against it. So I‘m looking forward to
55 hearing our panelists today.
57 And let me jump right in and introduce them.…We have first, you‘ve met Bill Weihl, the energy
58 czar of Google. We all would love to have ―czar‖ in our title, wouldn‘t we? Mary Nichols, chair
59 of the California Air Resources Board. Always nice to have you here, Mary! Vinod Khosla,
60 president and CEO of Khosla Ventures. And Tom Bottorff, who is the senior president of
61 regulatory relations for PG&E. We have a round of applause to encourage our panel.
63 And before they feel too encouraged, let me say that we‘re hoping to have answers run pretty
64 rapidly here, maybe 3 minutes each. And we have some help in that regard. Where is our timer?
65 There is our timer! You will be getting a 1-minute warning sign, I believe.…A 30-second
66 warning sign, and a time-is-up warning sign, and you don‘t want to push her past that. Someone
67 is going to be handing out cards, I believe, for you to write down questions, and we will try to
68 get through our questions quickly, so we can get to the things that you’re most interested in.
70 Let‘s start by asking Chairwoman Nichols to help us understand exactly what AB 32 is all about.
71 Passed in…2006, as the Global Warming Solutions Act, outlining how the state will meet the
72 goal of reducing global-warming pollution to 1990 levels by 2020. That‘s just 10 years away.
73 That‘s pretty ambitious.
75 Q: So, Mary, what exactly does AB 32 and its scoping plan set the state up to do?
76 And…what impact is it having, and will it have, on our environment?
78 A: (Ms. Nichols) Sure. Well, AB 32 basically creates a new framework for a lot of things
79 that the state was already doing, but also gives it an added impetus. So by setting a goal and a
80 target of meeting what basically was the same requirements that the countries that signed the
81 Kyoto Treaty agreed to, we said that California will reduce its emissions roughly 15 percent
82 below what they are today, or 40 percent, almost, of what they would have been under business
83 as usual, by 2020. So that‘s an actual, serious reduction in emissions of the most potent
84 greenhouse gases. And then it told the Air Resources Board to go out and develop the plan for
85 how to do that. ARB completed that task. Probably the first and most important thing that this
86 involved is measuring, coming up with the data to tell you what we are emitting, and who‘s
87 emitting it, and then to try to design an array of solutions to meet the goal.
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89 The plan that we put together, that we adopted at the end of 2008, according to the schedule that
90 was laid out in the bill, is a mixture of measures. It contains a whole series of different regulatory
91 ideas.…Some of them are things that were already being done, as I mentioned, like the state‘s
92 existing appliance standards, building standards; but ratchets them up a little bit. Some of them
93 are things that the ARB was already doing under other legislation, like the auto-emission
94 standards that we have been pursuing, and finally, now, have permission and support from the
95 Obama administration, which has picked them up and taken them to the national level.
97 And then, to top it all off, we‘ve developed some new measures, including a low-carbon-fuel
98 standard, which is really the first of its kind, and is now being considered, or in the process of
99 being adopted, by a number of other states, that‘s designed to set a performance target for fuel
100 suppliers, a measure called us at local planning, and how to tie transportation together with
101 planning. A renewable energy standard for the utility industry to deal with our emissions from
102 electric power plants, and then a cap over the whole thing that covers about 85 percent of the
103 economy, and is designed to put a price on all those other places where carbon exists, and where
104 we can find ways to reduce it. So that‘s what we‘re doing to achieve these goals. It‘s an
105 ambitious set of targets, and it gives us a way of tying a lot of these ventures together.
107 Q: Just a real quick follow-up. Are most of the regulations, the specific regulations, in place?
108 Or are you still working on the specifics?
110 A: (Ms. Nichols) Most of them had actually been adopted, but are not yet ready to actually
111 start taking effect. The date by which everything is supposed to actually start working is 2012.
113 Q: Okay. But people can take a look at what‘s out there at this point.
115 A: (Ms. Nichols) Absolutely.
117 Q: Okay. Let‘s talk about research and development, and we‘ll direct this one to Bill, our
118 czar. To achieve energy independence, which is a national-security priority, it seems like the
119 federal government needs to substantially increase spending on clean-energy R&D. It now
120 spends less than $3 billion a year in clean-energy research, compared to $30 billion on health
121 research, and $80 billion on defense research. So, Bill, what should…we be spending on this, as
122 a nation?
124 A: (Dr. Weihl) Well, I‘m not an economist, so I‘d hesitate to put a single number on that,
125 but I think $3 billion is almost certainly far too low. Many people have suggested numbers in the
126 range of $15 to $30 billion. Obama, during the campaign, suggested $15 billion a year for 10
127 years. So I think…there are two parts to what‘s needed. One is more money. A lot more money!
128 The other is certainty about the funding. It‘s not enough to have, for example, what we got with
129 the stimulus over the last year or so, big bullets of funding in the system, and then it goes away.
130 That‘s about enough time for, you know, an academic researcher to actually write a grant
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131 proposal, get the money, hire a couple of post-docs, get a grad student, and then have the money
132 go away. So you need funding that…you can count on for, say, 10 years.
134 So I think that…it‘s clear we need, as a society, to invest much, much more in R&D. Industry
135 could be doing that, as well. We‘re doing it here at Google a bit, but we‘re not an energy
136 company. The energy companies, by and large, don‘t actually invest very much of their revenue
137 in R&D – much less than high-tech companies, and I think that‘s something that both the
138 government and industry should do more of.
140 Q: Could a better, more-stable R&D tax credit meet some of this need? Or do we really need
141 public spending to…get the advances out there in the public domain, where any company can
142 build on them?
144 A: (Dr. Weihl) I think we need both. We need a wide range of policies. An R&D tax credit,
145 particularly one that…businesses can count on, really matters. That will help. But you can‘t
146 assume that if you put a tax credit in place, that businesses will invest their R&D money on
147 solving the problems that society needs solved. They‘ll solve the problems that will make them
148 money over the next 5 years, 10 years. We‘ve got an enormous problem that needs to be solved,
149 not just by 2020, for California to hit the goals in AB 32, but really, by 2050. You know, as Bill
150 Gates said in his talk at the TED (Technology Entertainment and Design) conference, and I think
151 this is really right, the real goal is the 2050 goal of effectively de-carbonizing our economy, and
152 things that get us to a 20-percent reduction by 2020 are great, but if they don‘t actually put us on
153 the path to hitting the…2050 goal, then we‘re just delaying the problem.
155 So we need investment in breakthroughs, and I think that…an R&D tax credit alone isn‘t enough
156 to get the kinds of breakthroughs we need. We also need policies that will stimulate investment
157 in actual deployment of…clean-energy technologies, and then we need policies that will
158 stimulate much more R&D to generate those new ideas.
160 Ms. Marshman: Okay. And competition may not hurt, so let‘s talk about China. China is
161 emerging as a clean-energy powerhouse, to the surprise of some of us. Last year, China outspent
162 the U.S. almost 2:1 in clean energy – $34.6 billion compared to our $18.6 billion.
164 Q: So, Vinod, is China winning the clean-energy race? Can we keep up?
166 A: (Dr. Khosla) I wouldn‘t say China is ―winning‖ the clean-energy race, but they‘re clearly
167 paying a lot more attention to the race. China has a new policy called ―indigenous innovation.‖
168 That‘s in China‘s interest, and they‘re doing the right things for China, and I [had] a quick email
169 exchange with Andy Grove last…night, and he said, ―You asked me the right question. ‗When
170 will we start doing the right thing for the U.S.?‘‖ And it‘s not to blame China. They‘re doing
171 what…is in their best interest, and, frankly, it does help the…global economy, too.
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173 We have an advantage. We are the center of innovation. We know how to do innovation. We
174 have the R&D, the research, but what China is doing more than anything else, and what
175 California needs to do, and the United States needs to do, is create markets. So I‘m even less of a
176 policy, all the regulations, kind of person, if we create markets. When we say California has to
177 be at a 15 percent lower carbon-emissions level, we create a market, and that‘s what AB 32 did.
179 Guess what? Innovation starts happening here because the market is here, and the next 10
180 Googles in the energy business would be created here in California if we keep that marketplace.
181 That‘s what‘s at stake. I…sort of liken this, because you always hear, ―Well, these policies will
182 increase cost.‖ It‘s a little bit like your 401(k). If you sign up for it today—and I recommend all
183 of you do; everybody knows it‘s good common sense—you get a little less in your paycheck next
184 month. You save a lot for the future. It makes sense. It‘s an investment in our future. That‘s how
185 I look at it. That‘s what we need to do. And let the Chinese do what they‘re doing well, and if
186 they innovate in addition to us, the world will be a better place.
188 Q: So are there still advantages to locating these kinds of businesses in Silicon Valley and
189 California, rather than China?
191 A: (Dr. Khosla) No question about it. The markets are here. The innovators are here, the
192 ecosystem – whether it‘s the entrepreneurs, whether it‘s the science and technology, and the
193 technologists, or the markets. If the markets disappear, I suspect the answer to that question will
196 Ms. Marshman: Thank you. Let‘s talk about regulation, which, in business, is often a dirty
197 word. Conventional wisdom seems to be that regulation stifles innovation. But 20 years ago,
198 Michael Porter, from the Harvard Business School, put forward the notion that well-crafted
199 regulation could actually promote economic growth and competitiveness. I think we go back to
200 what Vinod was saying about creating markets. He turned up lots of examples of products and
201 business efficiencies that came about because industries were given clear guidelines and
204 Q: So, Tom, being from a company that knows a thing or two about regulation, do you think
205 California is doing a good job in crafting its regulations, in general? Or is it in the category of
206 getting in the way of innovation?
208 A: (Mr. Bottorff) In my opinion, I think, they‘ve done a good job, and I‘d like to give you a
209 few examples to support that. Some of you may be familiar with California‘s program called the
210 California Solar Initiative. Passed by the state legislature back in 2007, it‘s a 10-year program
211 that was created to provide rebates to installers or owners of solar PV systems. Those rebates
212 would decline over time. It was a great program because it was a 10-year program. It was
213 understood in advance. People knew what incentives were going to be available.
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215 And, just to demonstrate how effective it‘s been, the expectation was it…would take 10 years to
216 accomplish some of the goals that had been laid out.…Many of you may have heard the
217 governor announce it as…the ―million roofs‖ program, and we would have 3,000 megawatts
218 when it was completed. Well, we‘re in the third year of that program, and it was a 10-step
219 program which was identified as you would make progress over 10 years and 10 steps. Well, we
220 are in the 7th step of this program,…and a large number of our customers are stepping up and
221 saying, ―We want to install solar PV systems on our homes.‖ So the program is a great success
222 and it‘s just one example. But it‘s not the only one.
224 There are a number of programs that the state has adopted, and I‘ll just give you a couple other
225 examples. One is smart meter, our…net metering, which is an incentive which provides people
226 an opportunity to receive payments for energy they deliver into the system, and it‘s a strong
227 incentive to not only own solar on your system, but maybe just provide a little surplus to others
228 who might want that renewable energy. We also have a feed-in tariff which is available for
229 smaller installations, but it‘s the start of a program that will also, I think, provide an indication
230 to…vendors on a long-term scale about what kind of opportunities exist to install renewable
233 And the most important one, and I think Vinod made reference to creating markets, the biggest
234 market that was created was with the passage of SB 17, which put in place a renewable-portfolio
235 standard. The utilities in this state are required to meet 20 percent of their energy needs with
236 renewable energy by the end of this year. Now we‘re going to get close. We may not make it
237 precisely, but there is flexible compliance in the program, and I think we will get there within the
238 next year or two. Those kinds of opportunities, which require us to purchase energy, go a long
239 way toward stimulating markets, and now we‘re on the verge of moving toward 33 percent. So
240 those are just a few examples where I think the state has done very well.
242 Ms. Marshman: Thank you. Let‘s talk about cap and trade, which is a big part of California‘s
243 approach to this. Not to harp on China, but on the same day the U.S. Senate announced that
244 national climate-change legislation was essentially dead, China announced it‘s ready to begin a
245 carbon-trading program to help meet its 2020 carbon-intensity target. In California, 20 percent of
246 the emission reductions in AB 32 will be attributed to a state cap-and-trade program.
248 Q: So, Mary, could you start out by telling us just how this will work? How do we use a
249 market to reduce pollution?
251 A: (Ms. Nichols) Sure. Obviously, this is not the kind of market that people enter into for
252 the fun of it. They get into it because they are subject to being under the cap if their business is in
253 the cap, but there are abilities for others to play in this market, as well. So basically, the covered
254 entities, which represent about 85 percent of the economy, have to hold allowances, which will
255 be issued by the government, which cover their total amount of CO2 emissions; but, unlike the
256 kind of market where you want to grow the number of allowances, this is a market where you
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257 shrink the amount of allowances. So, every year, there will be fewer allowances available as we
258 ratchet the cap down in the direction of meeting our overall carbon targets.
260 What makes it attractive is the fact that a company has a choice. They can not use all of their
261 allowances, and sell them into the market to people who need them. If they can‘t afford to reduce
262 their emissions as cost-effectively as others, they can go out and buy allowances from other
263 people. And there are also some refinements on this that allow for offsets so that if there aren‘t
264 enough allowances in the system, you can go out and purchase tons of carbon that would be the
265 equivalent of an allowance from somebody who has cleaned up, perhaps by doing something
266 completely new, somebody outside of California, or somebody who‘s doing something to save
267 carbon like preserving forests in Brazil.
269 The key to all of this of course is that it be accountable, that it be measurable, that these be things
270 that are in excess of regulatory obligations that already exist. And there‘s a lot of refinements to
271 make it work, so that people will have confidence that the market is real, that they‘re getting a
272 commodity that‘s actually tradable, and so that‘s why it‘s taken staff at the ARB, and many,
273 many smart people that have helped us, and worked with us, a couple of years to get ready to put
274 out our proposed design for the program. But we‘re about ready to unveil it, and we‘re hoping to
275 get [it] adopted by the end of this year.
277 Q: So I assume you‘d like to see a national program, as well?
279 A: (Ms. Nichols) Absolutely, yeah. I mean we won‘t launch this program without partners to
280 trade with. It doesn‘t make sense, even for an economy as big as California‘s, to try to do this all
281 by ourselves. We have been working with a coalition of western states and Canadian provinces,
282 all of which are very interested. But to get the kind of leverage that you really need to make this
283 program succeed, the United States has got to step in, and they‘ve got to not only work with us
284 and all the other states, including those that have much, much higher emissions profiles than we
285 do, but they also have to really take the leadership role at the international level, as well.
287 Q: So is there a danger to California‘s moving ahead on its own?
289 A: (Ms. Nichols) Well, we think that, for now, all the advantage is to us, because we‘re
290 working through a lot of the issues and the ideas that other people need to be thinking about.
291 People around the world and in Congress are paying attention to how we‘re doing this. The
292 Waxman-Markey bill (American Clean Energy and Security Act of 2009, ―ACES,‖) that has
293 passed the House that includes a big cap-and-trade element to it relied on the work that
294 California had done up until that point. And so I think we‘ll…be fine. But, of course, if it gets
295 another couple years down the road, and we don‘t see partners out there, then we‘re going to
296 have to rethink how to do this. We‘re not about to pull any triggers that we can‘t undo.
298 Ms. Marshman: So we‘re really hoping that others will come along.
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300 A: (Ms. Nichols) Absolutely! Encouraging others.
302 Ms. Marshman: Carl mentioned proposition 23 on this fall‘s ballot, which is probably,
303 essentially, the reason we‘re all here today talking about this. It would suspend AB 32 until the
304 state‘s unemployment rate gets down to 5.5 percent and stays there for four straight quarters,
305 which the Legislative Analyst says has happened only three times since 1970.
307 Q: So, Vinod, let‘s talk about, if it passes, what happens to venture-capital investment in
308 cleantech? We‘ve been doing really well. I think California got about $2.1 billion in 2009, 60
309 percent of the total in North America. Did the prospect of AB 32 have anything to do with that?
311 A: (Dr. Khosla) Absolutely! You know, AB 32, from my point of view, created markets.
312 Proposition 23 will kill the markets and the single-largest source of job growth in California the
313 last two years. If you look at it, the cleantech industry is where job growth has been, and so we
314 not only kill forward-looking regulation that helps us and our kids‘ future, we kill the source of
315 job creation in this state.
317 Not only that, we kill investment in the long term of creating the next 10 Googles. Today, the
318 real grab race for which state or country ends up with the 10 new—and it could be 20 new—
319 great companies that are created, the next Googles. And this happens quickly.
321 I mean Larry [Page] and Sergey [Brin] were in their Stanford office when I first met them, and
322 you couldn‘t imagine a company with the size, influence, and job-creation potential of Google.
323 There is no doubt in my mind we‘ll see 10 of these, and today, I would say, California is in the
324 pole position to win that race, and I can point to tens of companies—some of them will stumble
325 along the way—that are in position to win. It is our race to lose, and so it‘s a little bit like that
326 401(k) plan. We invest a little bit now. We save a lot in the future. We create more jobs in the
327 short run, and we create the great companies that will continue to create jobs for…decades.
329 Q: So when you‘re deciding on an investment, do you look at the regulations that are out
330 there, and…rely on the predictability of that regulation?
332 A: (Dr. Khosla) You know, predictability is absolutely the key. If a regulation creates a
333 market like I believe AB 32 has done, then, in fact. it is, in Michael Porter‘s terms, a good
334 regulation. And it‘s a…key part of what we look at, because those markets make it very
335 attractive to operate in California. I know solar manufacturers, solar-cell manufacturers, who
336 could produce their solar cells [more cheaply] cheaper in China, but are setting up factories in
337 California. More of the start-ups in Silicon Valley are setting up factories in California than in
338 China, by a lot, and that‘s because there‘s a market here.
340 Q: So if AB 32 goes down, that…
342 A: (Dr. Khosla) I think that will change.
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344 Ms. Marshman: Yeah. Interesting. So let‘s talk about the impact on jobs. Prop 23 supporters say
345 the state can‘t afford to go it alone on climate change, and just the prospect of AB 32 is costing
346 the state jobs, which, of course, is the opposite of what Vinod has been saying. It seems like the
347 sector has been the only bright spot in California‘s economy lately.
349 Q: Bill, let me ask you…If AB 32 is, in effect, repealed, how will that affect the cleantech
350 sector? Do you think just the prospect of the law has cost us jobs?
352 A: (Dr. Weihl) I think…the prospect of the law, to Vinod‘s point, has actually helped create
353 jobs. It‘s helped create companies. I think Carl said there are half a million jobs in the clean-tech
354 sector in California at the moment. It‘s been the…one bright spot in the economy in this state in
355 the last few years, and I think part of that is certainly due to AB 32. Part of it is due to the
356 amount of innovation that California is…famous for, and the number of companies that have
357 been created. I think that rolling it back would get rid of the certainty that businesses rely on, that
358 investors rely on, and that would hurt job creation in the cleantech sector. I don‘t think it would
359 help job creation in other sectors particularly, but it would certainly hurt it a lot in the…cleantech
360 sector. And, for California, as Vinod said, we can either lead in this, and invest in it, and
361 participate in this huge growth sector, or we concede that to China, India, and other places; and I
362 think that it would be crazy for us to sit back and…let others take that opportunity.
364 Ms. Marshman: Vinod?
366 A: (Dr. Khosla) I…just want to add some examples. If you look at job creation in
367 California, and the things California is most proud of, in the ‗80s, when I started here, it was
368 semiconductors and computers. In the ‗90s, it was first telecommunications, the Ciscos and
369 Junipers of the world; and, based on that, then the Internet companies—most people forget,
370 Google only started in 1998—and then Facebook and others came along. The next big industry,
371 and probably an order of magnitude larger than all these things, is going to be cleantech. Do we
372 want…to be proud of our industry there? Hundreds of companies started just in the last four or
373 five years because the new policies in the state created these markets. This is about how our
374 economy will be growing in 2025, not just in 2011.
376 A: (Ms. Nichols) But it‘s really a transition that we‘re talking about here. If you listen to the
377 arguments of the supporters of prop 23, their vision of California is a World War II or 1950s
378 vision of California. They want to go back to a time when rubber factories and building of
379 aircraft and automobiles were the main businesses of California. Of course they all kind of
380 ignore agriculture, which could be, actually, a big winner under prop 23, but – I mean under prop
381 32, sorry—because. they have offsets that they can market very effectively as a result of their
382 activities; but it really is about where is our economy heading.
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384 Ms. Marshman: Thank you. Well, let‘s go back to regulation for a minute, ‗cause I think…there
385 is still a lot of fear that the…particular rules that will come into…effect with AB 32 will be a
386 burden for businesses, not necessarily for clean-tech businesses, but for…others.
388 Q: So, Mary, how do you balance these immediate and very real concerns in a recession like
389 this, against the long-term goals of AB 32?
391 A: (Ms. Nichols) Well, the approach that we‘re trying to take is one of easing into it, and
392 doing it in a way that is equitable and pragmatic as opposed to being as dramatic as some people
393 would have suggested, at the beginning, we should have done. If we were going to do this in a
394 kind of a big-bang way, and there‘s an argument that this would be healthy if we…did it this
395 way, we would have started immediately with an auction of allowances, you know. Just put a
396 price on the carbon. Get it out there and make everybody participate, and then start using the
397 revenue for lots of good things that we could imagine—we could all imagine—spending money
398 on in California.
400 That is not the approach that we‘re taking.…We‘ve come up with this mixture of sector-specific
401 rules that deal with transportation, for example, not making people choose, you know, between
402 sort of spending money on gasoline versus spending money on electricity. We‘re not going down
403 that route.
405 And one of the things that I think we‘ve really absorbed in listening and just observing what‘s
406 going on in this state in last couple of years, is that we‘ve got to put some price limits on the
407 whole program. To the extent that we are launching into an area where we don‘t know quite what
408 we‘re doing, we‘re going to have to put some kind of a price collar, as they call it, you know, at
409 the low end and the high end of what allowances can cost, so that there‘s a price on carbon, and
410 people know what it is, but there‘s more predictability; and, if we‘re wrong, there‘s of course the
411 ultimate fail-safe that the program can be suspended for a period of time while we take
412 corrective measures to make sure we‘re not getting out of whack. But that‘s within the broad
413 context of continuing to try to keep the goal in mind.…
415 I like Tom‘s comment about the renewable-portfolio standard that they are living with now,
416 where the law said 20 percent. Well, maybe they‘re not going to quite get to 20 percent this year;
417 but, having had that 20 percent goal out there focused everybody‘s attention, kept them moving
418 forward, and then, if, at the end of the day, you have to adjust a little bit, and decide how to deal
419 with the fact that not everybody is going to get there at quite the same time, that‘s a much easier
420 problem to deal with, because we‘ve made so much progress already.
422 Q: Do you have any kind of process to deal with individual companies that might have
423 trouble complying with existing…regulations, either this AB 32, or other. Just your normal…
425 A: (Ms. Nichols) Sure. Well, one of the biggest concerns that‘s been raised is about
426 companies that operate in trade sectors that are very impacted by trade, that are companies like
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427 the cement industry, where they compete directly with companies in Latin America or Asia for
428 the same product. And how do you adjust for that factor?
430 And so, in designing the…program, what we‘ve come up with is a concept where basically we
431 will put aside an extra pool of allowances to deal with some of those trade impacts. You know,
432 it‘s not perfect, but I think it gives them the assurance that they‘re not going to just automatically
433 be hit with competition that it can‘t deal with. I mean the fact is that anybody who does business
434 in California operates more cleanly than companies do in most other places. All of our existing
435 regulations force them to…operate more cleanly and efficiently. So they do have an advantage,
436 but it can also be a cost; and so we have to take account of that in designing our allowance
439 Ms. Marshman: Thank you. Let‘s talk about financing, which is one of the challenges of the
440 cleantech sector. It‘s particularly critical to this sector because it‘s so capital-intense up front, not
441 just for R&D, but for manufacturing scale-up and…product roll-out. There were a number of
442 ideas for dealing with this. There have been proposals for a green bank to finance companies, or
443 maybe a lending program patterned after the public-private partnership of the federal Export-
444 Import Bank.
446 Q: So, Tom, let me ask you about this. Are there ways for government and the private sector
447 to work together to speed up development of clean energy?
449 A: (Mr. Bottorff) Yes, and, fortunately, we‘ve had a number of programs that have been, I
450 think, very effective today to help facilitate that. You talked about financing. Well, apart from
451 financing, you have a series of credits that have been established, both federal and state
452 investment-tax credits, for example. Those have been very successful in spurring some of the
453 technology growth that we‘ve seen. So we have that kind of support. It‘s clearly important to any
454 developer who‘s trying to market a product successfully.
456 You also have loan guarantees. Those have been championed probably most recently with
457 the…ARA, the American Recovery Act. That has been a source of great funding to help support
458 industries who want to launch their products and get them done in a timely manner. So I think
459 these kinds of efforts have been critical, and helped many of us realize some of the opportunities.
460 Those are a couple of examples.
462 Ms. Marshman: Okay. Let‘s talk about our hosts for a few minutes, if we…may, Bill. Google‘s
463 an innovator –
465 Dr. Weihl: If you insist!
467 Ms. Marshman: I didn‘t think you‘d mind! Google is an innovator in general, but it‘s really into
468 clean energy. It‘s committed to going carbon-neutral as a company. It‘s developing online tools
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469 to help people understand how they use energy, lots of other things. But it‘s not really—it
470 doesn‘t seem to be really—a part of Google‘s core business.
472 Q: So, Bill, tell us what…drives this company and other companies like it, to get into this
473 area, to put so much energy into it, if you will, when it doesn‘t seem to be part of your…core?
475 A: (Dr. Weihl) Well, it‘s…certainly not part of our core search and ads and applications
476 business. That‘s clear. At the same time, we use a lot of energy to run our business. We have big
477 data centers around the world that are full of computers. Those computers run on energy and so
478 we depend on electricity, and the same electrical grid, that everyone else depends on; and we feel
479 that it‘s our responsibility to make that energy that we use as clean as possible, to use as little as
480 possible, and that we can‘t just sit around and wait for other people to solve the problem, that
481 there‘s a big problem there in terms of the…emissions, the pollution, that comes from the energy
482 we consume, and that we need to do everything we can, both in the short term and also looking
483 to the long term, to try to clean that up.
485 So we‘ve done an enormous amount of work on energy efficiency, and I…think people talk
486 about that as the…low-hanging fruit that keeps growing back sometimes. There‘s always more
487 you can do. And, in most cases, it actually makes economic sense. There are times when, to be
488 more efficient, you actually need to spend so much that it may never pay back, but that‘s very,
489 very rare. So we…build our own data centers, we build our own servers, and the energy-
490 efficiency work that we‘ve done in designing those systems means that we use about half the
491 energy we would be using if we were following industry-standard best practices. That‘s huge in
492 terms of our ―Missions‖ profile, and it‘s huge in terms of our financials, because we‘re buying a
493 lot less energy.
495 We also have invested in renewable energy, both in terms of equity investments in companies,
496 but also in terms of both onsite renewables, like the solar panels here in Mountain View, one of
497 the largest corporate installations in the U.S., as well as buying renewable energy. We signed
498 recently a 20-year power-purchase agreement (PPA) for wind energy to be used to supply our
499 Iowa data center.
501 That 20-year commitment gives the developer certainty that they actually now know…what their
502 revenue stream is for the next 20 years. They can take that to the bank, get debt financing for the
503 project, and now go build another project. So we‘re looking for ways like that to take our current
504 energy use and reduce it, clean it up, have an impact on the markets.
506 Q: …Is there any initiative you‘re particularly excited about?
508 A: (Dr. Weihl) Well, I‘m very excited about that recent PPA. We‘ve been looking for ways
509 to buy renewable energy for a long time that both make economic sense for us and have a big
510 impact on the market, and I think that‘s…a good example. I‘m also excited about the engineering
511 work that we‘re doing in tandem with the investments that we‘ve made. Google Power Meter is,
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512 as you mentioned, the…service that gives people visibility into their home energy use. It‘s a
513 really simple thing, but think about it. If you went to the grocery store, and there were no prices
514 on the items, you fill up your basket, you go scan everything, but don‘t get told how much it
515 costs, and, at the end of the month, you get a bill. That‘s kind of the way we buy electricity at
516 home today. You turn on lights. You turn on your DVR. You turn on other things. At the end of
517 the month, you get a bill. Having visibility into when you‘re using energy, and how much you‘re
518 using, actually is remarkably empowering in terms of getting people to pay more attention, to be
519 more conscious, to realize where they can save money and save energy. So that‘s one that I think
520 is…very exciting.
522 Ms. Marshman: Thank you. Vinod, let‘s…come back to venture capital for a minute. From an
523 investor‘s perspective, what are the biggest areas of opportunity to reduce greenhouse gases
524 through new products or businesses? And…what‘s the next big thing, if you can tell us without
525 getting into trouble with the SEC?
527 A: (Dr. Khosla) You know, this…has been the surprise to me. There are so many
528 things…it‘s hard to even pin. No matter where I look, [there are] huge opportunities to do two
529 things: one, create new technology and businesses, but, two, save consumers money. And I want
530 to reinforce Bill‘s point.
532 If you look at Google‘s costs for data centers, a big part of search costs, it costs more to run a
533 computer than to buy it. If I can drop, and we have a company doing this --
535 A: (Dr. Weihl) I can neither confirm nor deny that statement! (laughter)
537 A: (Dr. Khosla) But, in general, it‘s –
539 A: (Dr. Weihl) In general, yes.
541 A: (Dr. Khosla) It‘s well-known. If I can drop…that electricity consumption by 80 percent,
542 two things happen. First, they can buy a lot more computers with the same budget, and provide
543 much better services, and use much less electricity. So that‘s one example.
545 We have a company trying to cut data-center one-rack energy consumption by 80 percent. We
546 have a company trying to cut electric lighting efficiency by -- electricity consumption, by
547 lighting, by 80 percent. We have a company trying to cut air-conditioning costs and electricity
548 usage by 75 percent. You take a couple of these and you say, ―What impact does it have?‖
550 First, every one of these has short-term paybacks. In fact, electricity and air conditioning, our
551 goal is less than 12 months‘ payback. So the price point matters. But I suspect, as the optimist,
552 that in 10 or 15 years, we will have an excess of electricity in this…country. We will be shutting
553 down plants and still having enough electricity, instead of having to build hundreds of new
554 nuclear plants. And I have nothing against nuclear. Those are examples.
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556 Guess what? Consumers will benefit when demand goes down. All consumers. So I want to
557 generalize that. Having said that, we‘re doing things in agriculture [that] I would never have
558 imagined a few years ago. We have two or three projects in agriculture, all related to cutting
559 greenhouse gases, nitrogen runoff, you talk about it. Even using less nitrogen. So no matter
560 where I look, there‘s massive opportunity for technical innovation in surprising places. Who
561 would have thought, in fertilizer, we‘d find an opportunity? The Haber-Bosch process hasn‘t
562 changed in a hundred and some years –  something was when it was invented.
564 [The] air-conditioning cycle was invented a hundred years ago. We found a new thermodynamic
565 cycle. That‘s pretty amazing. In fact, I don‘t think anybody has looked for new thermodynamic
566 cycles in the last 50 years that…I know of, at least not practical ones. So infinite opportunity no
567 matter where you look, whether it‘s in lighting, air conditioning, how to make tires better, how to
568 make transportation better – I could go on for hours about all the interesting opportunities.
570 Q: When you started your company, did you think you‘d end up investing in agriculture?
572 A: (Dr. Khosla) I wouldn‘t have dreamed of it!
574 Ms. Marshman: It‘s fun!
576 A: (Dr. Khosla) And strange bedfellows, started by three Ph.D.s in optics from Stanford, all
579 Ms. Marshman: Oh, funny!
581 A: (Dr. Khosla) They didn‘t know anything about agriculture.
583 Ms. Marshman: That‘s great. Let‘s turn back to solar for a moment. It‘s certainly coming into
584 its own with the green movement, but it‘s…hard to find places for large-scale solar projects.
585 Several are hung up in the energy commission in California because of the environmental-review
586 process that‘s required for using public lands. It‘s going to be hard to meet the goals of AB 32
587 without doing at least some projects like this, but the legislation to fast-track them has failed to
588 pass the legislature.
590 Q: Tom, how is this affecting what you do in PG&E? And how are you dealing with it?
592 A: (Mr. Bottorff) …You highlighted one of the main consequences, in that it becomes
593 difficult to achieve your targets with respect to, you know, generating electricity with renewable
594 sources is sort of delayed, and there are a variety of reasons why they might be delayed. I think
595 when we first entered into contracts with a number of suppliers, we thought that was the major
596 step. ―We‘ll enter into the contracts. They have the certainty they need. Now we‘ll just watch
597 them get built.‖
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599 Well, that didn‘t happen, and there‘s a variety of reasons why it‘s got stalled; but, among them,
600 you need to get the product to market. So if you‘re out there building a facility out in the desert,
601 the electricity still has to get from that source to the market, so transmission is a key driver. You
602 need the transmission to get it to market. You talked about permitting. That‘s another problem.
603 It‘s not just permitting from one agency, but multiple agencies, and each of them have very
604 important objectives that they need to address, and…adhere to. But if one of them might find a
605 problem with a particular project, that could delay it for a month, a year, or longer. So what we
606 find in reality is that, among the projects that many would like to see get built, many that we
607 would like to see get built, they‘re stalled; and, as a consequence, projects don‘t go forward as
608 quickly as we anticipated.
610 What‘s our alternative? It‘s generally to buy electricity from other sources, non-renewable
611 sources. So we delay our ability to accomplish one of our major objectives, and that‘s to stall
612 these—or limit these—greenhouse-gas emissions. Limit our dependence on corn oil – all those
613 major policy objectives get delayed. We‘re all trying to work together to overcome it. We‘re
614 making some progress, and I think we‘ll get there, but that‘s why we‘re not moving as quickly as
615 many would like.
617 Ms. Marshman:…Thank you. We want to get to our audience questions pretty soon, but
618 let‘s…just do a couple of quick, lightning-round questions for all of our panelists, to finish up.
620 Q: The first one, Congress has failed utterly to produce a comprehensive climate-change bill
621 this year; but here we are in California once again leading the nation on big issues like this. We
622 can‘t pass a budget, but we can do AB 32. (folks chuckle) What lessons might there be for
623 Washington in what California does? Tom, could you start?
625 A: (Mr. Bottorff) Well, I think, among the lessons that…have struck me over…the years,
626 that we‘ve talked a little bit about energy efficiency, and how important that is, and how
627 successful it‘s been in California. There are reasons why you might find that some states are
628 unwilling or unable to move on renewable energy; but energy efficiency is something we can all
629 do, and the fact that we‘ve done it here, and done it so successfully, and it‘s really the
630 cornerstone of our energy policy, that‘s something that I think can be a lesson nationwide, and
631 should be. I think energy efficiency should be at the top of every politician‘s list of what should
632 be implemented, and I‘d like to see that happen.
634 A: (Ms. Nichols) I think the lesson is that if you set big goals, and then allow the process to
635 work to achieve those goals, you can succeed. I think the problem that‘s got Congress hung up at
636 the moment is they want to write every detail of the legislation so they can be absolutely sure
637 that no state will have to spend more than any other state, and no industry will be disadvantaged,
638 compared to any other industry. It‘s not going to work, and they will never get there that way.
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640 I think the good news is that the Obama administration, even though they‘re still trying to get
641 legislation, and they should, is also beginning to unleash the power of the clean air act, which, if
642 you look at greenhouse gases…as a pollutant, which they are—they have the same sources, and,
643 generally speaking, most of the same solutions—I think we can make a lot of progress that way.
645 A: (Dr. Weihl) I think if you look at the history of AB 32, there was some remarkable
646 leadership in Sacramento, including the governor, as well as many in the legislature. I think that
647 unfortunately, in Washington, we‘ve seen too many special interests on various sides, either
648 killing the bill, or…gutting it in various ways in the end, meaning that we‘ve got no progress. I
649 think that we need some real leadership, and people who are willing to…stand up and say, ―This
650 is a problem. We can solve it. We‘ve got the innovation. We…can find the solutions.‖ But we
651 can‘t just sit back and wait until someone else solves it, or wait for it to solve itself.
653 A: (Dr. Khosla) You know, also to say, I think one of the problems is too puritanical a view
654 on the environmental side. When people push solutions, whether they make economic sense or
655 not, I think it hurts the cause more than it helps the cause.…I‘d like to say I‘m a ―pragmentalist,‖
656 not an environmentalist, and it‘s important that we realize, first, you want to do as much, but
657 there is a middle ground that generally is more feasible, and so you do a little bit of game theory,
658 and [figure] out, ―What is the most we can do?‖ not ―How do we be pure about it?‖ And I think
659 that‘s a mistake environmentalists often make. So my biggest caution would be pushing for too
660 much, which makes one seem unreasonable, and we get even less than we would have [gotten],
661 had we been more pragmatic.
663 Ms. Marshman: Okay. Thank you. I don‘t know that Washington is taking advice from
664 California these days, but if it were, we had some good advice here.
666 Q: Our final question for…all of [you] folks: Lots of countries, not just China, but Brazil,
667 Spain, Germany, are really heavily into renewable energy, largely due to government investment.
668 So let me ask you. and we‘ll start with…Vinod this time, what kinds of policies or incentives do
669 we need to stay competitive, or to become competitive, in the global playing field for our
670 cleantech sector?
672 A: (Dr. Khosla) You know, I‘m…not a huge fan of subsidies. I actually think creating
673 regulatory markets and a level playing field is a good idea. For example, I‘m all for letting
674 nuclear compete. I think it is totally uncompetitive. There hasn‘t been a nuclear power plant built
675 anywhere in the western world in the last 20 years for less than $7,000 a…kilowatt. That‘s not
676 competitive with solar in most parts of the world. It‘s not competitive with wind. It‘s probably
677 not even competitive with carbon sequestration. But if it was a level playing field, except if you
678 look at all the big numbers we are spending on clean energy, the biggest is nuclear loan
679 guarantees, which essentially give subsidized capital to nuclear. If solar had access to the same, it
680 would be much more competitive, I believe. So set up a level playing field. Create the markets.
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682 I keep going back to [the fact that] AB 32 created a market. We should create markets and let
683 people compete. Mary mentioned cement. Let‘s not subsidize the cement guys by giving them a
684 carbon allowance. Let‘s put a tax on Chinese cement that comes in that is higher carbon. Big
685 difference. Because if somebody invents a low-carbon cement, like we are doing, then we can
686 compete with the high-carbon guys and still produce it in California. We turn the emissions of
687 power plants into cement, so we take care of carbon from the power plant, whether it‘s coal or
688 natural gas. We can make coal and natural gas competitive with solar and wind in its carbon
689 emissions, and produce a product that replaces a really dirty product, cement. But if you give
690 them allowances, I can‘t compete against them, because you‘ve lowered their cost. If you
691 lowered the Chinese cost, then I can compete, so stay technology-neutral.
693 A: (Dr. Weihl) I think markets – I mean I would agree with…most of what Vinod said. I
694 think that having markets that are predictable is really important, and I think that that is better
695 than subsidies, because subsidies, people tend to get dependent on. I think that there are policies
696 that we would put in place that would drive more R&D faster than just the market pull. I think
697 that some amount of technology push is a good thing. Investment in industry and university and
698 national-lab R&D could make a big difference; and I think, in particular, I‘d like to see more
699 emphasis on really aiming for the home runs that will get us to that 2050 goal, not the
700 incremental things that will get us to 2020, but not put us on a path of getting us to 2050.…
702 So we‘ve done some of that internally. We‘ve got a small group of engineers working on what
703 we call ―RE<C,‖ ―renewable electricity cheaper than coal.‖ We‘ve done external investments.
704 We also have some internal R&D going, looking at what I would describe as some home runs.
705 We might fail. But if we‘re successful, it could move the time when renewable electricity really
706 competes unsubsidized, without a…price on carbon, with coal, much, much, much sooner than is
707 going to happen just watching the way the market is progressing, and I think that‘s the kind of
708 thing we need to see much more of in California and nationally.
710 A: (Dr. Khosla) I really want to reinforce his point real quickly. We need more R&D, but
711 we need more university R&D. It isn‘t the right thing. You know, if it‘s a good idea, the venture
712 capitalists will fund it. Private industry will fund it. All the incremental stuff should not be
713 getting R&D funding. I‘d rather give it to a professor at…Stanford, who has a great idea for a
714 breakthrough [technology]. We need to focus much more on the home-run swings, which is
715 almost always university research, or national labs, than venture-capital firms.
717 A: (Dr. Weihl) Yourself excepted, to some extent.
719 A: (Dr. Khosla) Yeah.…I try and sort of have more strikeouts, which, hopefully, results in a
720 few more home runs, but…the point is important, that giving money to companies,…and every
721 one of my companies will oppose what I‘m saying. They‘ll say, ―Give us the R&D dollars.‖
722 Much better to give it to the universities and research labs that…really are taking the longer view
723 and the bigger deltas.
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725 A: (Dr. Weihl) And philanthropy is stepping up at universities a bit, but private
726 philanthropy will not fill that 15- or 30-billion-dollar-a-year-for-10- or 20-year gap in terms of
727 R&D funding that we need;…and the only place we can do that is as a society as a whole.
729 A: (Ms. Nichols) From the perspective of California as a state, first of all, I agree with both
730 of the previous speakers. I wish we had the power to impose a leveling tax on products that are
731 made with too much carbon over the course of their life cycle here in California, but
732 the…politics of that, and, certainly, for my agency, the authority just isn‘t there to do it, which is
733 why we have to resort to less-good measures.
735 But what‘s going to make California stay at the edge, in addition to our progressive
736 environmental policies, is investing in things that make this a better place to live, and, certainly,
737 the fact that we have cleaned up our air over the years, and that this is just such a gorgeous place
738 to live, is a big piece of what makes this good. We need to keep it that way, and then we need to
739 invest in the things that will make all the wonderful researchers from all over the world who
740 come to our universities stay here, which are things like decent public schools for their kids, and
741 safety in the streets, and, you know, being able to get around in traffic, where Google can help us
742 a lot, I think – some of your ideas.
744 A: (Mr. Bottorff) I guess I would only add that creating markets, I…agree with the
745 comments that have been made, and those are extremely important. We have created markets in
746 California. Talked about the renewable standard here; but imagine if you have manufacturers
747 here in our state who have an even broader market to reach. What if renewable-portfolio
748 standards exist, and not just here in California, but nationwide? I think the more you can expand
749 the market for the products that people need and want to see installed, the more likely you are to
750 see them. And that‘s really what I think is probably a next step in the process.
752 Ms. Marshman: Thank you. We‘re going to turn now to our audience questions. The first one, I
753 think Vinod has already answered from his perspective.
755 Q: The question is, ―What‘s your opinion of Stewart Brand‘s assertion that, to get off fossil
756 fuels, we must rely on nuclear power as we transition to renewables?‖ I think we know where
757 Vinod is on that one. Would anybody else like to talk about nuclear?
759 A: (Ms. Nichols) I would just say that the debate about whether you‘re pro- or anti-nuclear
760 is kind of passé, in my judgment. I mean I don‘t think it makes sense to have nuclear singled out
761 as the evil compared to all other ways of generating electricity. The issue is really to put a full
762 life-cycle carbon cost on the whole process, and let the chips fall where they may, but
763 recognizing, again, as others have already said, that efficiency is going to win out every time
764 when it comes to what is the most cost-effective way to meet our needs for energy. It‘s going to
765 be the fuel that we don’t have to burn, the electricity we don‘t have to use.
767 Q: Tom, did you have any thoughts on that?
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769 A: (Mr. Bottorff) Well, I just wanted to add,…I‘m sort of a believer in diversification.
770 We‘re all taught that in economics. We‘re all taught that in our investment portfolios. We
771 certainly believe that as a utility purchasing power. Dependence on one type of resource is risky.
772 We all learn that. Now I think that nuclear needs to be part of the equation until you have a clear-
773 cut choice elsewhere. So I‘m…of a belief that you need to consider all the options on the table.
774 And if your goal is truly eliminating greenhouse gases, you want to focus on those resources that
775 can help you get there. Nuclear happens to be one of those options.
777 Ms. Marshman: Okay. Vinod is trying to control himself.
779 A: (Dr. Weihl) Yes, no, I think that makes a lot of sense. I think nuclear, as Vinod
780 said,…has a number of problems. One of the biggest ones is cost. Doing something that doesn‘t
781 make economic sense is not going to actually solve the problem in the long term. I think that it‘s
782 a mistake from, you know, thinking about what Stewart Brand has said, I think there are—there
783 may be—a silver bullet here. The problem is, if there is, we don‘t actually know what it is, and
784 so right now, until it‘s obvious what that silver bullet is, should we ever find one, we need to
785 invest in a range of approaches. Nuclear might be one of them, if we can get the costs down; if
786 we can deal with the waste issue, and so on. There are people who are working on approaches
787 that they think will…solve those problems, and I think they should do that; but I think, with the
788 approaches we have today, it doesn‘t make economic sense, at least in the western world, and we
789 need to be looking at a…wide range of approaches.
791 A: (Ms. Nichols) But just in case anybody thinks we‘re not using nuclear today, we have
792 two big-baseload power plants in California—one that PG&E owns; another, Southern California
793 Edison—that provide very reliable power, and if we didn‘t have them, we would be in big
794 trouble right now.
796 Ms. Marshman: Okay. Let‘s move on to cap and trade. ―Do you think programs like the western
797 states initiative can actually help drive us toward a national program, a national law?‖
799 A: (Ms. Nichols) Well, that‘s why we‘re investing so much time and energy in the Western
800 Climate Initiative, and it really has been a terrific process, particularly in terms of building the
801 relationships across the border with Canada, with which we share many things, including the fact
802 that we have strong states that try to push their national governments in the direction of doing
803 things that we think need to be done. So absolutely we think that the rising tide of…people
804 wanting to see these programs work will make them turn to Washington, and say, ―Come on,
805 guys! We need you in this, or it‘s not going to be as effective.‖
807 Ms. Marshman: Any other thoughts on that? Okay, let‘s move on.
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809 Q: A question for Tom. ―We‘re in an industry transition from cleantech and the oil industry.
810 Are you concerned how to grow the economy while relying less on fossil fuels as a primary
811 source of power?‖
813 A: (Mr. Bottorff) We certainly are part of the engine that grows the economy. You need
814 electricity. You need natural gas to…fuel a lot of the operations that…will grow the economy.
815 I‘m of a belief that you certainly need to continue to minimize the dependence on fossil fuels, if
816 not because you believe in the environment, and minimizing greenhouse gases, but because
817 you‘re dependent on a foreign source of energy whose price you can‘t predict. It has a great
818 uncertainty; and, over the course of the last 30 years, has skyrocketed in some instances, and
819 reduced in others. So I think the more we make progress to reducing that dependence, the more
820 likely we are to have an economy that‘s sustainable, and long-term growth will occur.
822 Ms. Marshman: Here‘s a big-picture question.
824 Q: ―How can we help reframe the discussion about climate change? What can concerned
825 citizens do to turn the tide on climate change?‖ Anyone?
827 A: (Dr. Khosla)…I want to take a quick pass at the previous question, too. Fossil fuels have
828 really done us well. We know they‘ll run out at some point. I think we take the wrong approach
829 when we say, ―Let‘s switch all to renewables.‖ I think the right approach is to set our carbon
830 targets and…go by them. I‘ve been a huge advocate. I‘ve opposed the renewable-fuel standard
831 mostly because it‘s picking technology choices like renewables. Most of our investments are in
832 renewables. Much better to define a low-carbon standard. California did that in fuels, and it sort
833 of brought out the truth about corn ethanol, because California has a low-carbon fuel standard.
834 That was a great standard.
836 In electricity, we should do the same thing. Make a low-carbon electricity standard, and if
837 nuclear can compete unsubsidized, let it compete. But if you can clean up coal or natural gas,
838 let‘s do that. California power regulations today say…basically, to sign a new PPA, a power
839 purchase agreement, you have to be below 1,100 pounds of carbon per megawatt hour. It says
840 you can‘t build a coal plant in California, but you can build a natural-gas plant. Let‘s set another,
841 lower bar for our renewables piece, our low-carbon piece. Let‘s say it‘s 400 pounds per
842 megawatt hour, and…sort of separate it that way, so we have more technology choices.
844 There‘s no question in my mind that we can double the efficiency of today‘s [fossil fuel].
845 Engines that are 50 percent more efficient are not only very likely, but they will be a lot more
846 cost-effective than an electric car. So why focus on electric cars? Let‘s focus on grams of carbon
847 emission per mile, because our electricity also has carbon emissions. And let‘s go for the lowest
848 carbon emissions,…and the Europeans have done that. It‘s something like 104 grams per
849 kilometer by 2015. That‘s the right way, the technology-neutral way, to do it.
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851 But I want to get back…to this question of the larger, ―What can we do to reframe the debate?‖ I
852 wrote an article on it that we, in fact, were treating climate change as this moralistic thing, and
853 some of us may believe it, but it‘s the wrong framing for business.
855 To me, climate change is a risk, and we should treat it like any other risk. We spend hundreds of
856 billions of dollars on terrorism. We spend money on flood insurance. We spend money on
857 national defense, nuclear terrorism, non-proliferation. Climate change is just another risk, and if
858 we treat it as a cost, as an insurance cost of insuring our future, it‘s a much better framing for
861 I happened to be on a panel with Rex Tillerson, the CEO of Exxon, about six months ago, and
862 once I framed it this way, he said, ―I completely agree. And there‘s a certain insurance cost we‘ll
863 pay to ensure against the future.‖ I think that‘s the reframing we need. It‘s a business reframing,
864 and no matter whether you‘re a Democrat or Republican, everybody agrees with the notion of
865 insuring against future risks. Climate change is one of those risks.
867 Ms. Marshman: Interesting. Anyone else have a thought?
869 A: (Ms. Nichols) Well, if businesspeople were running the country, that would actually
870 make sense, and,…in many respects, I think we‘d be better off if…they were, actually. Despite
871 the fact that I‘m a liberal Democrat, I still believe that, you know, some of the best minds and
872 policies around today are coming out of the private sector.
874 But, unfortunately, the people who vote in a lot of the states that are sending members to
875 Congress, that are voting against doing anything for climate, are not thinking in those very
876 sensible businesslike terms, and I think, to motivate those people, we do have to use…maybe a
877 little bit more red-blood-stirring American kinds of arguments, which I think, actually, the
878 Obama administration has been doing a good job with, in terms of our dependence on oil from
879 countries that hate us, and the cost of running a defense policy that is really aimed at trying to
880 assure a steady supply of affordable oil. If we could get people to realize that our climate policy
881 is actually about getting off of those very self-destructive dependencies, I think that would help a
884 Ms. Marshman: Anybody else?
886 A: (Dr. Weihl) I think all of that makes sense, and I think there‘s a…jobs-and-growth
887 message associated with solving the climate problem, if you will. You don‘t have to get to
888 people by telling them we‘re going to fix the environment. It‘s about new jobs. It‘s about a
889 growth industry. But you can also point to -- When you talk about the risks, you can point to the
890 risks not just long-term for businesses, but the risks to people from oil spills, from Katrina, from
891 heat waves and droughts. Look at what‘s going on in Russia right now. It‘s very hard to lay the
892 blame for any one of those events on global warming, but when you look over 10 or 20 or 30
893 years, and see increasing frequency of…extreme weather, the trend is pretty clear, and I think
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894 that we could do a better job of connecting with not just the businesspeople, whether they‘re in
895 Washington or elsewhere, but…individuals, around those kinds of messages.
897 Ms. Marshman: Okay. Yes, Tom?
899 A: (Mr. Bottorff) Just one added comment. I actually agree with Vinod on the basic concept
900 of having your standard be reducing greenhouse…emissions, and then looking for the cheapest
901 way of getting there. What we have in place, and what we have been doing as a state, is identify
902 programs. And we‘ve done a great job launching programs, and they‘ve been very successful –
903 energy-efficiency programs, the renewable-energy standard, Combined Heat and Power. There
904 are many technologies and programs that we have been very successful at launching and
905 promoting; but, when you get to Vinod‘s way of approaching the market, then you start looking
906 at what…are the cheapest ways of accomplishing your objective. If your…objective is simply
907 having renewable energy, then you need a renewable standard; but if your objective is solely to
908 focus on reducing greenhouse…emissions, and that‘s really what our major concern is today,
909 then you look at the whole range, the whole spectrum, of opportunities, and you focus on those
910 that can deliver it most cheaply, and that‘s frankly why we have prop 23 on the…agenda for this
911 November, is people are trying to scare us into believing that if we implement AB 32, as Mary
912 and her team are pulling it together, it‘s going to be too costly.
914 Well, it‘s not going to turn out that way, and Mary gave a number of reasons why it isn‘t. But if
915 you also, in addition, look at all the ways you can accomplish your greenhouse-gas targets, rather
916 than focus on a specific program, then you…will accomplish it in the most cheap, the most cost-
917 effective, manner.
919 A: (Ms. Nichols) In defense of California, just to toot the horn of the Air Resources Board,
920 the…ways in which we‘ve been effective in the past have been where we set a performance-
921 based standard, like the emission standards for automobiles, and then told industry to come up
922 with a method for getting there, and I think you‘re right, that that definitely has to continue to be
923 part of our thinking.
925 Q: Great! A question for Vinod and Bill. There is a thought that cleantech needs a Netscape
926 moment to revolutionize the industry. Do you think that‘s the case? …And, if it is,
927 what…foundations need to be in place so we can get to that Netscape moment?
929 A: (Dr. Khosla) Well, you know, I vividly remember when Netscape was a two-person,
930 three-person company on Castro Street, just down the road here. I mean literally two miles away
931 was their first office, at the intersection of El Camino and Castro, and I met with Jim Clark and
932 Marc Andreessen on, actually, a Saturday morning. I also remember the IPO for Netscape with
933 changed assumptions.
935 I do think it will help to have a Netscape moment where…you can appeal to people‘s greed and
936 say, ―You can make a lot of money at this. Go work on the problem,‖ because when we have the
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937 best minds working on the problem, we‘ll find solutions. So that will help. In fact, you know,
938 there was an earlier question of what subsidies, what support, what incentives we need. All those
939 will be dwarfed by the investment power of the markets.
941 When telecom got hot, in 1996, AT&T, Verizon, or its previous incarnations, Pacific Bell, and
942 others, told me they would never – We were starting up Juniper, and they said they would never
943 go to IP, Internet protocols—never—for their core network. We started the company anyway – a
944 good example of why not to listen to your customers. But within a few years, Wall Street was
945 funding $100 billion a year into remaking the telecom infrastructure, and there was nothing
946 AT&T…could do to control it. Within five years, AT&T went from a powerhouse to being sold
947 for a song to Cingular1. People forget that AT&T is no more. It was sold to this company called
948 Cingular. Five years. That‘s how…fast massive change can happen powered by the power of
949 markets. So there is no shortage of funding for reinventing the infrastructure. If we invested in
950 energy what we invested in telecom those 5 or 10 years, the change is a slam-dunk. There is
951 more than enough money, and more than enough greed, on Wall Street to fund all these
952 programs as soon as we make them economic and profitable.
954 A: (Dr. Weihl) And there‘s also more…than enough hunger for innovation and for the
955 opportunity to work on these problems. When I visited universities, and talked about the work
956 we‘re doing, you know, all the major universities have student-run energy clubs, organizations of
957 one form or another, that, in many case, have 30, 40, 50 percent of the student body. They‘re all
958 passionate about these issues. They‘ve got good ideas. They want to work on it, and having those
959 markets, and then those companies, and the funding for university research, will give them that
962 Ms. Marshman: Did you have a thought on that, Tom? Okay.
964 Q: A question here for Mary, but I think probably any of you could address this. It‘s about
965 23, and we really touched on it earlier. We‘ve said California has led the nation in these kinds of
966 environmental advances. ―With regard to prop 23, what will be the national reverberations if
967 Californians pass this, and put AB 32 on ice?‖
969 A: (Ms. Nichols) I think that the national reverberations will be probably even more
970 significant than what happens here in California, because everywhere that I‘ve been in the last
971 several years since I‘ve been in this job, people have pointed to California as the example for
972 why it can be done, and how it can be done. Not to say that people always just line up to follow
973 us, but at least, when we set a benchmark, others look for ways that they can then meet it, and
974 that‘s already happening, for example, in the New England states. There‘s a Northeast group that
975 is looking at adopting our low-carbon fuel standard. They would probably tailor it differently to
976 fit different profiles of the fuel that they would get there.
He means SBC?
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978 There‘s a Midwestern governors‘ group that‘s been meeting, and even, quietly, a Southeastern
979 governors‘ group that‘s interested in developing their own approach to a cap-and-trade program,
980 because they don‘t want to be left out. They see something happening, and they…want to be part
981 of it, too.
983 If the proposition were to pass, I think the implications of that would be profound. I think it
984 would immediately be taken up as an argument that, you know, ―Look. Even the people in
985 California, those crazy environmentalists, aren‘t willing to do this stuff. Why should we possibly
986 consider doing it?‖ And I think it would hurt not just the cause, or the environmental advocates,
987 either, but it would hurt, really, as others here have said, the investments that people have been
988 quietly making all over the country in anticipation of these kinds of policies, moving forward. It
989 would just make it that much harder to get it moving again, when the…pendulum swings, as it
992 Ms. Marshman: Okay, thank you. Any other insights on that? I mean it seems…pretty obvious
993 to me that it will be a disaster nationally if…23 passes.
995 Q: A question for Vinod. ―Energy efficiency in data centers‖ – actually, Bill may have some
996 thoughts on this, too – ―only addresses a fraction of the problem. How can IT enable
997 sustainability beyond energy efficiency?‖ Actually, any of your might have a thought on that, but
998 let‘s start with Vinod.
1000 A: (Dr. Khosla) Well, you know, data centers were just one example. There‘s hardly an area
1001 of energy consumption that somebody isn‘t addressing with energy efficiency. Like I said, we
1002 are working on lighting that [is both] 75 percent less energy, and also very, very fast payback.
1003 We‘re doing that with air conditioning. We are doing it with – We have three different engine
1004 projects to make engines much more efficient; so almost across [the board], we have much more
1005 efficient generation of electric power. We are talking about distributed generation with
1006 efficiencies that are in the 60-plus-percent range. That‘s pretty impressive! I know Google uses
1007 Bloom Energy fuel cells, which was my first cleantech investment a long, long time ago, 2001.
1009 So every area of efficiency is being addressed. Some will get economic sooner than others, but
1010 I‘m pretty optimistic that we will keep marching down this path. We will consume the same
1011 amount of energy with half the consumption of inputs, even without considering renewables,
1012 within sort of…20 years.
1014 Ms. Nichols: Tesla‘s law.…
1016 A: (Dr. Weihl) So just to…comment very briefly,…there have been a number of studies
1017 looking at what percentage of global energy use, global greenhouse-gas emissions, the IT, really,
1018 the ICT, information and communications technology sector, is responsible for, and the best
1019 studies put it at about 2 percent, total. So IT, ITC, is responsible for 2 percent of emissions.
1020 Being efficient about that is clearly important, so having more efficient data centers, more
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1021 efficient computers, more efficient phones, you know, every electronic device, that‘s clearly
1024 People tend to focus on that sometimes, and say, ―Oh, look at those big data centers. They use a
1025 ton of energy. That‘s terrible.‖ That‘s an issue, and something that we need to be responsible for;
1026 but I think that it actually misses the bigger…issue, which is the other 98 percent, and all of the
1027 things that Vinod is talking about, certainly, and many of those opportunities for efficiency are
1028 places where IT, in fact, has a big role to play in making those other sectors more efficient,
1029 whether it‘s being able to do research online, rather than having to drive to the library, or more
1030 efficient routing for airplanes, or, you know, cars that drive themselves, and can be much more
1031 efficient, and…reduce the amount of time spent in traffic, so you‘re not idling, and so on. All of
1032 those kinds of things, and there are many, many more examples, where many of the efficiencies
1033 we get in new engine designs, etc., come because we‘re using computation, and I think that‘s one
1034 place where IT will make a huge difference, going forward.
1036 Ms. Marshman: Thank you. I think our time is up. I would like to thank our panelists. It‘s been
1037 a great discussion. How about a round of applause…
1041 August 10 & 11, 2010
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