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									    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
194   change.
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
202   incentives.
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
231   systems.
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
437   system.
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 – [1800] 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
577   right?
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.

      SVLG “Electric Bills and Oil Spills” – panel discussion at Google, August 10, 2010           Page 20
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.

      SVLG “Electric Bills and Oil Spills” – panel discussion at Google, August 10, 2010            Page 21
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
859   business.
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
882   lot.
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

      SVLG “Electric Bills and Oil Spills” – panel discussion at Google, August 10, 2010            Page 22
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

      SVLG “Electric Bills and Oil Spills” – panel discussion at Google, August 10, 2010             Page 23
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
960   opportunity.
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?

      SVLG “Electric Bills and Oil Spills” – panel discussion at Google, August 10, 2010           Page 24
 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
 990   will.
 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

       SVLG “Electric Bills and Oil Spills” – panel discussion at Google, August 10, 2010          Page 25
1021   efficient computers, more efficient phones, you know, every electronic device, that‘s clearly
1022   vital.
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…
1039                                                           ###
1040   /WPP
1041   August 10 & 11, 2010

       SVLG “Electric Bills and Oil Spills” – panel discussion at Google, August 10, 2010          Page 26

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