January 2009

What is to be done?

January 29, 2009

The very brainy people at McKinsey & Co. have figured out how we can to cope with global warming.

All we have to do is:

1. Make buildings, cars, trucks, trains planes and factories a whole lot more energy efficient.

2. Generate 70 percent of global electricity from low-carbon fuels, including wind, solar, hydro, nuclear, and so-called clean coal which doesn’t (yet) exist.

3. Avoid the deforestation of 170 million hectares of forest, equivalent to twice the land area of Venezuela, and plant new forests on 330 million hectares of currently marginal land.

And what would that accomplish? Here’s what a new McKinsey report says:

Our analysis finds that there is potential by 2030 to reduce GHG emissions by 35 percent compared with 1990 levels, or by 70 percent compared with the levels we would see in 2030 if the world collectively made little attempt to curb current and future emissions. This would be sufficient to have a good chance of holding global warming below the 2 degrees Celsius threshold, according to the Intergovernmental Panel on Climate Change.

In plain English, this means that these massive changes are just about the minimum that needs to be done before the impact of global warning gets scary.

McKinsey has been studying global warming for years. They have brought their expertise to bear to create, and maintain, a global data base of abatement measures, looking at more than 200 ways to reduce GHG emissions across 10 industry sectors and in 21 regions of the world, measuring both their impact on emissions and their cost. Really detailed stuff. You could spend hours just perusing the grafs.

I’m not going to attempt to summarize the study, called Pathways to a Low Carbon Economy. You can download a 19-page summary here.

Here, though, are a few of my takeaways:

Yes, this will cost lots of money, but we can afford it. If we pursue the most rational approaches to abating GHGs, McKinsey estimates the cost at 200 to 350 billion EU annually by 2030. (That’s $262 billion to $460 billion, at current exchange rates. And it assumes that policymakers, businesses and people will be rational. Nuff said.) That’s less than 1 percent of forecasted GDP (and about half the size of the current economic stimulus package making its way through Congress), although the study notes that the estimates are just that and subject to change, Still, don’t let anyone tell you that solving the global warming problem will be cost-free.

Time is short. Every day, we’re making matters worse, pumping more global warming pollution into the air. And, because we need a global solution that includes China and India, and because they won’t act until the U.S. does, it’s important that Congress pass GHG regulation this year. McKinsey says: “A 10-year delay in taking abatement action would make it virtually impossible to keep global warming below 2 degrees Celsius.” We’ve done almost nothing for the last 10 years, unfortunately, so we’re digging ourselves into a deeper hole.

Solving this problem is up to all of us. Or, at least, to those of us in the U.S. and Europe, who have the world’s biggest per capita carbon footprints. Changing our behaviors—and not just the kinds of energy we use—could have a significant impact, says McKinsey. Key opportunities include reducing business and private travel, shifting road transport to rail, accepting higher domestic temperature variations (i.e., turning the thermostat down in winter and up in summer), reducing appliance use (watch less TV) and eating less meat. I’m probably doing no better than OK in this regard—I drive about 6000 miles a year in an energy-efficient Honda Fit (good) and eat very little meat (good) but I do a gazillion Google searches (not so good) and fly a lot (bad),

McKInsey doesn’t recommend specific government actions. But the report makes clear that voluntary, i.e., free market, measures won’t do the trick. It calls for efficiency standards to overcome the “market imperfections” that prevent energy efficiency opportunities with net economic benefits from being realized. It says the governments need to create stable and long-term incentives to promote low-carbon energy sources and discourage emissions of CO2. And it calls for incentives to preserve forests.

What are we waiting for?

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Barack, Paul Newman and me

January 25, 2009

Magazines love lists. FORTUNE has its 500 biggest companies, Forbes has its 400 richest people, Cosmopolitan has 75 Crazy-Hot Sex Moves and Ethisphere has the 100 Most Influential People in Business Ethics in 2008. President Obama (No. 14), the late Paul Newman (No. 91) and I (No. 39) all made the Ethisphere list because we were judged by the magazine to have “greatly influenced the business ethics realm over the past year.”

Others on the list included CEOs Lee Scott of Wal-Mart (6), Dave Steiner of Waste Management (11), Jeff Immelt of GE (16), Anne Mulcahy of Xerox (22), Neville Isdell (40) who’s just stepped down at Coca-Cola, Eric Schmidt of Google (41) and Howard Schultz of Starbucks (63). Tom Friedman (20) and Paul Krugman (31) of The Times made the list, as did social-investment leaders Peter Kinder of KLD Research (67), Joe Keefe of Pax World (69), Barbara Krumsiek of Calvert (92) and Amy Domini of the Domini Social Invements (93). Of course I’m flattered to be in such good company.

The name to watch on the list is, of course, Obama. He will have more influence on business than anyone in the year ahead, and he seems likely to use it. He has been in office for less a week and has already made two decisions that will have significant impact.

On his first day in office, Obama issued a presidential memorandum on transparency that directs federal agencies to be more open and to invite participation from citizens. It says, among other things:

Information maintained by the Federal Government is a national asset. My Administration will take appropriate action, consistent with law and policy, to disclose information rapidly in forms that the public can readily find and use. Executive departments and agencies should harness new technologies to put information about their operations and decisions online and readily available to the public.

This won’t affect business directly, but it sets an example that big companies will feel pressure to follow. Right now, I’m working on a story about lobbying by a big Washington trade association and finding that companies won’t tell their own shareholders what they spend on the association and its lobbying. That’s not right, and it probably won’t last.

Second, Obama is going to direct federal regulators today to let California and 13 other states set stricter fuel economy and emissions standards for cars, according to The Times. This is a big deal, and it comes over the opposition of the auto industry. I’m not persuaded that higher CAFÉ standards are the best way to raise the fuel efficiency of the U.S automobile fleet—I’d prefer a revenue-neutral gasoline tax, with the monies raised used to lower payroll taxes—but Obama’s decision is a strong and swift signal to business that companies had better get ready for tougher environmental rules.

The most important thing Obama and the new SEC can do to improve business ethics is to force reforms in corporate governance, giving shareholders the right to nominate directors for boards and giving them more influence over executive pay.

As Carl Icahn wrote last week in The Wall Street Journal:

Faltering companies are now soaking up hundreds of billions of tax dollars, and they are not substantially changing their management structures as a price for taking this money.

How does it serve the economy when we subsidize managements that got their companies into trouble? Where is the accountability? More importantly, where are the results?

The CEOs on Ethisphere’s list, or at least the ones I know, run their businesses for the benefit of shareholders, as well as for the good of the broader society. But many other do not, and right now there is no way shareholders can get rid of overpaid, self-aggrandizing CEOs.

I’m thinking in particular of Merill Lynche’s former CEO, John Thain, who even as he was preparing to lay off thousands of people, spent $1.22 million of company money to refurbish his office. As CNBC’s Charles Gasparino reported:

Big ticket items Thain purchased include: $87,000 for an area rug in Thain’s conference room and another area rug for $44,000; a “mahogany pedestal table” for $25,000; a “19th Century Credenza” in Thain’s office for $68,000; a sofa for $15,000; four pairs of curtains for $28,000; a pair of guest chairs for $87,000; a “George IV Desk” for $18,000; six wall sconces for $2,700; six chairs in his private dining room for $37,000; a mirror in his private dining room for $5,000; a chandelier in the private dining room for $13,000; fabric for a “Roman Shade” for $11,000; a “custom coffee table” for $16,000; something called a “commode on legs” for $35,000; a “Regency Chairs” for $24,000; “40 yards of fabric for wall panels,” for $5,000 and a “parchment waste can” for $1,400.

I would have put Thain on the Ethisphere list. If we’re lucky, his behavior will influence business ethics—for the better—in 2009.

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Sheikh it up, baby!

January 22, 2009

“You’ve got one of the oil capitals of the world taking a strong interest in renewable energy,” Tony Blair said. “It’s quite impressive to see.”

Yes, it’s impressive. Blair, the former British prime minister, held a brief news conference before delivering the closing speech at the World Future Energy Summit in Abu Dhabi. Like most of the speakers at the event, which brought 15,000 people to this oil-rich emirate on the Persian Gulf, he called for global regulation of greenhouse gases, investments in solar and wind power and international cooperation to share technology with poor nations.

“It is right now,” Blair said, “at the instant when our thoughts are centered on the economic challenge, that we must not set to one side the challenge of global warming, but instead resolve to meet it and put the world on path to a sustainable future.”

Abu Dhabi’s heading down the path, in a hurry. By now, if you’ve paid any attention (or if you read this front-page story in The Times last week), you’ve heard about the zero-carbon, zero-waste, powered-by-solar Masdar City, which is being built outside of downtown Abu Dhabi.

But did you know that the city will also include the world’s biggest and most sophisticated PRT (personalized rapid transit) system, computer-driven vehicles that will take people exactly where they want to go, nonstop? Here’s what the PRT vehicles will look like:

And did you know that the Masdar Initiative, the parent company for Abu Dhabi’s alternative energy ventures, is going to build what could be the world’s largest carbon-capture and storage operation?

And did you know that Masdar is building a solar panel manufacturing plant in Germany, which will then be duplicated in Abu Dhabi, and quite likely after that in the U.S.?

And did you know that Abu Dhabi also has plans to build as many as 10 nuclear power plants?

Now that’s Beyond Petroleum.

The cost of all this is a cool $22 billion, although the Masdar Iniative, as a for-profit entity, hope to make money back by renting out offices and homes in the city, selling energy to the rest of the Middle East and investing in clean energy businesses. Masdar, for instance, is an investor in Solyndra, a fast-growing solar PV company based in Fremont, Ca., with more than $1.5 billion in orders.

What Abu Dhabi is doing is uncommon in business. Rarely does a company (or, in this case, a country) that is thriving in one industry set out to become a leader in a competing business. Usually companies, or entire industries, are too busy protecting themselves against competition. Think about how the newspaper industry and the music industry missed opportunities on the Internet; if they had been willing to disrupt themselves, some classified ad guy would have started Ebay and craigslist and some music promoter would have invented iTunes.

Certainly Abu Dhabi doesn’t need to expand its operations.  The average net worth for Abu Dhabi’s 420,000 citizens is US$ 17 million, which is why most of the work in the city is done by expatriates from south Asia, Africa and the rest of the Middle East. Nevertheless, the ruling family has decided to use its wealth to diversify, and anticipate the changes to come.

As Masdar CEO Sultan Al-Jaber put it: “The world has reached a tipping point in the acceptance of renewable energy.”

I can’t really tell you why the country has set out in this new direction. When I asked Masdar people, I was essentially told that this was due to the sagacity of the royal family, and specifically to the wisdom of the overseer of Masdar, Sheikh Mohammed bin Zayed Al Nahyan, the Crown Prince of Abu Dhabi and Deputy Supreme Commander of the armed forces. The Sheikh doesn’t do interviews, so I couldn’t ask him directly about his thinking. (Disclosure: The Crown Prince paid for my trip to Abu Dhabi.)

I can tell you that the Sheikh has several things going for him that American CEOs don’t. He doesn’t have to worry about quarterly earnings, so he can invest for the long term. He doesn’t have to answer to shareholders. He doesn’t have to get elected. And no one will tell him publicly that he’s crazy to be spending money on solar power and green buildings because he can’t be criticized in the press.

I also can’t tell you whether the Masdar Initiative will succeed in its many ventures. But I can say that I don’t know of any company, or any country, that is doing more to lead the world to a low-carbon economy.

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Sustainable development, for real

January 21, 2009

“Sustainable development” is a buzzword tossed around by the UN and global NGOs. Typically it’s no more than a buzzword or, at best, a distant goal. Anyone who can actually promote development in a way that’s sustainable deserves a prize.

That’s why Dipal Barua just got one.

Barua is managing director of Grameen Shakti, a nonprofit in Bangladesh that adeptly marries two goals: helping people escape poverty and protecting the planet.

This week, Barua was named the winner of the first $1.5 million Zayed Future Energy Prize, an annual award established last year by the government of Abu Dhabi in an attempt to promote energy innovation.

Grameen Shakti—the word comes from a Sanskrit root meaning energy, force or empowerment—has enabled as many as 2 million people in Bangladesh to light their homes using solar power. It has helped thousands more use chicken or cow dung either to make electricity or as a fuel in cook stoves that are efficient, safe and clean.

Like the new president of the United States, Barua also sees renewable energy as a way to create jobs.

“One hundred thousand green jobs is my dream,” he told me, when we met during the World Future Energy Summit in Abu Dhabi.

Barua, who is 54, started Grameen Shakti in 1996. A self-sustaining nonprofit that runs like a business, Grameen Shakti was spun off from the better-known Grameen Bank, which with its founder, Muhammad Yunus, was awarded the Nobel peace prize in 2006. Barua, who has been with Grameen Bank since its beginnings in the 1970s, remains an executive there.

Barua told me that about 70% of the 150 million people who live in Bangladesh have no electricity. They typically use polluting kerosene lamps to light their homes at night.

“I tell them that for the cost of kerosene, you can buy a solar system,” he said.

The economics work like this: Total cost of a rooftop solar photovoltaic panel (imported from Japan), a battery and the required electronics is about $350 to $400. Customers typically put 10-15% down and pay the rest in monthly payments for three years. By then, they own a system that should last 20 years, without fuel costs. The panel makes enough electricity to power a few lights, a black-and-white TV and, most important, a cell phone. “Everyone wants a mobile phone,” Barua says.

Some systems are shared by several homes, while others are used to power small businesses. About 200,000 have been installed, and the business is growing fast. A $750,000 loan from the World Bank helped get Grameen Shakti started, but the operation now pays for itself.

“Any profits, we recycle,” says Barua.

Grameen Shakti has about 3,000 employees, most of them women who are trained to maintain and repair the solar systems. Several years ago, the NGO expanded to offer a biogas program, which uses cow dung or poultry waste to make electricity. The organization also makes and sells cooking stoves that reduce indoor air pollution and burn less wood, reducing deforestation.

Barua told me that Grameen Shakti is exploring the business of carbon finance, as an additional revenue source. The nonprofit would sell carbon credits–based on how many tons of CO2 its products prevent from entering the atmosphere–to companies or people in the west who want to offset their own production of greenhouse gases. Grameen Shakti has talked with the World Bank and with Climate Care, a carbon developer now owned by JP Morgan Chase, about selling credits either into the voluntary or regulated market.

So is this really sustainable development? Up to a point. Of course it’s a good thing for poor people get electricity from solar power. The thing is, the electricity powers a mobile phone or TV that isn’t sustainable, and then one thing then leads to another and, before you know it, Grameen Shakti’s customers will be wanting iPods and dishwashers and cars, just like the rest of us. No wonder sustainable development remains such an elusive goal.

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Green dawn

January 21, 2009

Perhaps it was my imagination, but there seemed to be a spring in the step of the Americans at the World Future Energy Summit here in Abu Dhabi.

“Today, I’m pleased to say that we have new president,” said Dan Arvizu, the director of the National Renewable Energy Laboratory.

He noted that his new boss, Steve Chu, the energy secretary, is a Nobel Prize-winning physicist and he projected a bigger-than-life photo of Barack Obama onto the screen during his presentation to the international audience here.

Arvizu described, with undisguised pleasure, the economic stimulus bill before Congress, which includes $150 billion in investments in renewable and alternative energy, including $11 billion to upgrade the electricity grid.

“We are going to build a new economy based on green and renewable energy,” Arvizu said. “We need transformational change. We must seize the moment.”

Steve Fludder, the new head of ecomagination for GE, also praised the new Obama administration for its “refreshing views” and said that a key goal of the ecomagination effort at GE is to “decouple” economic growth from rising greenhouse gas emissions. GE intends to invest about $1.5 billion a year in renewable energy, energy efficiency, so-called clean coal and water purification research.

This week, GE announced that it will locate an “ecomagination technology center” in Masdar City, the new zero-carbon, zero-waste city being constructed in Abu Dhabi.

“We are seeing a tipping point around the world” when it comes to clean energy, Fludder said. “I can tell you with absolute certainty, as a technology coming, that green is profitable.”

As for the Obama administration, and its plans for an economic stimulus package, new energy policy and carbon regulation, Fludder said: “We see nothing but positive impact.”

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Wind power, generating jobs

January 20, 2009

Last week, Ditlev Engel, the CEO of Vestas, the world’s biggest wind power company, got an emergency call at the company’s headquarters in Randers, Denmark. Could he get to a suburb of Cleveland, Ohio, the next day?

Engel couldn’t, so he missed the chance to meet Barack Obama. On his way from Chicago to Washington, Obama stopped in a town called Bedford Heights to visit Cardinal Fastener & Specialty Co., a supplier to Vestas that makes bolts for wind turbines.

“Renewable energy isn’t some pie in the sky,” Obama said. “It’s not part of a far-off future. It’s happening all across America right now.”

He got that right, and there’s no better example than Vestas of a clean energy company that can help power the U.S. economy and create new jobs.

Consider this: In 2004, about a year before Engel became CEO, Vestas employed 10,000 people around the world. By the end of this year, it will have about 20,000 employees.

Its U.S. business is ramping up, too. Vestas opened its first U.S. wind-turbine manufacturing plant last spring in Windsor, Colorado, not far from Denver. It is building two more factories in nearby Brighton. The company employs about 1,300 U.S. workers, a number that is expected to grow to 4,000 by 2010.

Despite the global recession, Vestas expects revenues to grow 25% this year. I spoke with Engel today at the World Future Energy Summit, a big conference and exhibition sponsored by the Masdar Initiative, Abu Dhabi’s clean energy company.

“Obviously, the financial market poses a challenge for any company today,” Engel told me. “But we have believed all along that changes were coming to the U.S. The United States has some of the best wind resources in the world.”

Ah yes, changes coming to the U.S. It’s interesting to be here in Abu Dhabi on the day of the Obama inauguration. Even as the slumping global economy casts a pall over the renewable energy business, companies from all over the world are looking to Washington for help.

But unlike many clean tech industries— electric cars, for example—that are mostly about the promise of tomorrow, Vestas and its wind business are thriving now. Vestas has installed over 33,500 wind turbines in 63 countries. It builds a new wind turbine, on average, every five hours. It generated revenues of $3.5 billion euros (about $4.8 billion) and profits of $195 million euros ($257 million) during the first three months of 2008.

Big U.S. customers for its turbines include Horizon Wind Energy, Duke Energy and ENEL North America. Besides the Colorado factories—which ship big turbines to anywhere in the country by rail—Vestas has a U.S. headquarters in Portland and a Chicago office dedicated to assembling a made-in-the-USA supply chain of companies like Cardinal Fastener.

“It doesn’t make sense for us to ship components from Europe or Asia,” Engel said.

Not incidentally, the U.S. passed Germany last year to become the No. 1 wind-energy nation, as measured by installed capacity, according to the American Wind Energy Association. That’s a Vestas installation near Evanston, IL.

While Vestas has been around since World War II, it didn’t build its first wind turbine until 1979. (Before that, the company made household appliances and agricultural equipment.) The business has really taken off in the last decade as turbines grew larger and more efficient, scale reduced manufacturing costs and government rules required utilities to buy renewable power in much of Europe.

A wind turbine “looks quite simple—a tower and three blades turning around. How difficult can it be?” Engel says. “The technology challenges are actually pretty big. We are at the end of the beginning of technology development.”

He predicts the wind power can account for 10% of the world’s electricity supply by 2020, and says it can compete with the costs of new nuclear plants or coal-fired generation. Denmark today gets 20% of its electricity from wind.

“Wind is the only energy source that, in the future, will be on par with oil and gas.” The value proposition for wind – he calls it the Vestas “high five” – is that wind power is clean, competitive in price, a source of energy security, predictable in its output and quick to install.

Wind has one more advantage over coal or nuclear-powered generation that isn’t as well known. Not only does wind generate fewer greenhouse gases than fossil fuels, it uses dramatically less water than other forms of energy.

Says Engel: “Green energy and greenbacks go hand in hand.”

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The mecca of renewable energy

January 19, 2009

In these dismal economic times, it’s remarkable that 15,000 to 20,000 people traveled to Abu Dhabi, of all places, for a clean-energy conference. The renewable energy business, after all, is reeling from the global recession, the credit crunch and the precipitous drop in the price of oil.

Signs of distress are not hard to find. There hasn’t been a successful clean tech IPO since First Solar went public in 2006. Wind power and solar energy companies are laying off workers, according to Greentech Media. Shares of renewable energy companies tumbled in 2008: The WilderHill New Energy Global Innovation Index (ticket symbol NEX) fell by 61%.

Nevertheless, here in Abu Dhabi, the mood at the World Future Energy Summit is surprisingly upbeat. Partly that’s because, 7,000 miles away, Barack Obama is about to become the next president of the United States, and there’s hope that his “green stimulus” program will deliver much-needed funds for research and tax incentives that will spur investment in energy efficiency and renewables.

Mostly, though, the business people and government officials here are optimistic because the fundamentals driving the renewable energy sector—namely, rising demand for power, the threat of climate change and energy security—are as strong as ever.

About 1.6 billion people in the world still don’t have an on-off switch in their lives; they’ll need energy to escape poverty. The science around climate change gives us more, not less, reason to act. As for energy security, Russia’s threats to cut off natural gas to eastern Europe are just the most recent reminder of why no nation wants to be too dependent on others for energy.

Dr. Sultan Al Jaber, who is chief executive of the Masdar Initiative, the clean-energy company that is sponsoring the conference, put it in this way in his opening address: “Renewable energy continues to make absolute sense, even in difficult times such as these.”

As if to underscore the point, Al Jaber announced that Abu Dhabi has pledged to generate 7% of its electricity from renewable sources by 2020.

“This is a bold statement from an OPEC-member state whose economy is dominated by oil and gas,” he said.

It also represents “a significant business opportunity for local and international companies.”

That’s why about 300 companies and 20 governments have sent delegations to Abu Dhabi. (See below for an array of corporate logos from the exhibition floor.) These companies see renewable energy as a big business, going forward.

Said Al-Jaber: “The progress we are making is irreversible.”

Some other observations from my second day in Abu Dhabi:

The view from MIT: Because MIT is a research partner of Masdar, Susan Hockfield, the university’s president, was the only academic to deliver a plenary speech at the conference. She advocated an all-of-the-above approach to energy, saying that with sufficient research, “safer nuclear” and “cleaner coal” will be part of the mix.

So will solar energy, Hockfield said, about which there is enormous excitement these days at MIT. “The amount of sunlight that reaches the earth’s surface in an hour contains enough energy to meet the world’s energy needs for a year,” Hockfield said.

Another big opportunity lies in energy storage. Improvements in battery technology, she predicted, will transform electric cars from a “quaint, pricey boutique option” to a “mainstream affordable solution.”

She also talked about research into new forms of energy storage, including “carbon nanotube-based ultra capacitors” and “benign viruses that self-assemble into extremely light flexible battery components without producing toxic byproducts.” For more on the latter, see this.


What’s wrong with this picture?: The Gulf News, an English language daily here, provides decent coverage of the U.S. and Europe, drawing from global wire services. A Maureen Dowd column about Bush and Obama ran this morning, as did dispatches from The Economist.

But there’s not a word of criticism of the ruling family of the UAE and coverage of the war in Gaza is one-sided. A column by the editor-in-chief of the paper compared Israel’s treatment of the Palestinians to Hitler’s treatment of Jews.

And a tourism map of Abu Dhabi given out by the Sheraton Hotel, where I’m staying, has a decidedly Arab-centric view: On a map of the region, showing Abu Dhabi’s location in the Persian Gulf, Israel simply doesn’t exist.

The World Really is Flat: Few cities anywhere are as globalized as Abu Dhabi, where between 80 and 90% of the people are expats. Most are laborers but many are well-educated professionals from the Middle East, Asia and Europe.

TV channels broadcast in many languages. The hotel offers Arabic, French, Spanish, Russian, Japanese and Indian channels, along with CNN, Bloomberg, ESPN and Fox Sports.

So I had high hopes of watching the NFC and AFC championship games over the weekend when I checked in, and I wasn’t disappointed. The thing is, the only channel showing the games was broadcasting them….in German.

Some logos from the exhibition floor:

I’m not sure if a hybrid Chevy Tahoe really belongs at a clean energy exhibition.

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Abu Dhabi’s amazing clean energy bet

January 18, 2009

Strange, isn’t it, that the biggest, most ambitious, most expensive clean energy project in the world, a zero-carbon, zero-waste new city called Masdar City, is going up in the oil-rich Abu Dhabi? Then again, maybe it’s not so strange.

There are good reasons why the royal family that runs Abu Dhabi, the largest of the seven emirates that make up the United Arab Emirates, and home to an estimated 9.2% (!) of the world’s proven oil reserves, is so committed to solar energy, zero waste, super-efficient buildings, sustainable materials, personalized electric transport and other clean tech innovations:

1. They know that energy is the biggest business in the world.
2. They know oil supplies are limited.
3. They understand the threat of climate change.
4. They have more money than they can spend.
5. And they run the country without opposition, so if they want to get something bold and risky done, like building a new city for 50,000 people, they get it done. There are no NIMBY (not-in-my-backyard) problems at Masdar, although that’s also because there are no backyards anywhere near Masdar. It’s being built in a desert, outside the city of Abu Dhabi.

I’ve been reading and writing about Masdar for a year or so, and today I finally had a chance to see it. This week, I’m visiting Abu Dhabi for the World Future Energy Summit, a meeting of about 15,000 people to discuss clean energy. The conference is attracting business people and political leaders from around the world. (Speakers include Tony Blair, Lord Nicholas Stern, Nobel prize winner Dr. Rajendra Pachauri and Susan Hockfield, the president of MIT.) Disclosure: The Masdar Iniative, the parent company of Masdar City, paid my expenses to attend.

Today, Masdar took about 50 reporters on a tour of Masdar City, which is still in its early stages. Currently under construction are a headquarters building, and a couple of buildings that will be part of the Masdar Institute, a research-oriented graduate school being developed in cooperation with MIT. The institute is expected to open later this year, with about 250 faculty and staff and about 150 students. Because Masdar wants to attract top students from around the world, those admitted will get free tuition. There’s lots more about the city at the Masdar website.

The most impressive thing we saw today was a solar energy power plant, consisting of an array of solar photovoltaic panels, spread across a 55-acre site. When construction is completed in March, the solar facility will have 87,777 panels and be able to generate 10 megawatts of electricity—making it the largest solar power plant in the Middle East and North Africa. That’s still not very big. By comparison, a typical coal plant can generate about 700 megawatts.

The solar plant is being designed and built by an Abu Dhabi-based startup called Enviromena Power Systems, whose CEO, Sami Khoreibi, told me that he started the company explicitly to take advantage of opportunities being created by Masdar. “We hope to use this project as a launching pad,” Khoreibi said, noting that the abundant sunshine in the Middle East make it a perfect site for solar power. The 10Mw plant cost about 185 million dirhams, the local currency, or about $50 million dollars.

Interestingly, Masdar has been conducting field tests since 2007 of solar photovoltaic panels—33 systems from 15 countries. The purpose is to measure their performance against cost under challenging, real-world conditions. (Summers here feature sweltering heat.) “We’re testing and constantly analyzing the data, and using it for our procurement process,” said Dr. Samir Tabu Zaid, a Masdar executive who responsible for solar. Here he is, snapped with my iPhone:

The test results won’t be made public, Zaid said, because some companies that supplied panels did not want to be measured against their peers. He wouldn’t even say which companies were competing, although he said they come from the U.S. China, Japan, Taiwan, Spanish and Germany, among other places.

But we know that two companies did very well because their panels were chosen for the first 10MW solar plant. One is Suntech, the big Chinese company that makes conventional silicon crystalline solar panels, and the other is First Solar, a U.S. manufacturer that makes thin film solar in, among other places, Toledo, Ohio. The Walton family of Wal-Mart fame were among the early investors in First Solar. Each is supplying 5 MW of solar. Eventually, solar photovoltaic power is expected to deliver about 80% of the electricity to Masdar. The city will need 200 to 250 MW.

First Solar isn’t the only U.S. company that wants to profit from Masdar. Applied Materials, of Santa Clara, CA, is supplying machinery for a solar PV manufacturing plant that Masdar is building in Germany. CH2MHill, the Colorado-based U.S. construction and engineering firm, is project manager for Masdar City. CH2MHill’s CEO, Ralph Peterson, is speaking here. (He’s also agreed to speak at FORTUNE’s Brainstorm Green conference.)

A big question: Will the Masdar Initiative make money, and, if so, how? If the city is a success, it will attract businesses and other tenants, but the upfront costs – an estimated $22 billion – don’t justify Masdar purely as a real estate development. Longer term, the hope of Abu Dhabi and Masdar is to invent, develop and export clean technology. As Khaled Awad, director of property development at Masdar, put it today: “This city is supposed to be a destination for innovation.” Query why this can’t be happening in Silicon Valley or Washington, D.C., but in a flat world, we’ll all benefit from the work unfolding here.

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Why experience matters

January 16, 2009

My favorite email of the day came in from a senior exec (in every sense of the word) at a FORTUNE 500 company. He writes:

At a time when the recession is causing many organizations to offer incentives for early retirements, it is interesting and sobering to note that 155 people owe their lives to the experience and skills of Chesley B. Sullenberger III, age 57.

Enough said.

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The climate change plan we need?

January 15, 2009

Climate change is “perhaps the most comprehensive challenge that mankind has ever faced,” declared David Crane, the CEO of NRG Energy, as a group of 26 big companies and five big environmental groups came together on Capitol Hill this morning to offer Congress a blueprint to tackle global warming.

It’s hard to argue with his assessment. The question is, is the blueprint being put forward by Big Business (GE, DuPont, Alcoa, Dow, Duke Energy, Xerox, Shell, Conoco Phillips, the three automakers, etc.) and Big Green (EDF, NRDC, the Pew Center, World Resources Institute and Nature Conservancy) up to the challenge?

The 24-page document from the U.S. Climate Action Partnership, also known as USCAP, emerged from nearly two years of negotiations. You can read it here. “We don’t view this as a perfect document,” said GE’s Jeff Immelt. “We view this as a catalyst for change.” Congress now gets to tackle the issue. Henry Waxman, who heads the House committee dealing with greenhouse gas regulation, said today he wants to get a bill out of committee by May.

USCAP is proposing a cap-and-trade scheme (as opposed to a carbon tax), which adds multiple layers of complexity to the inevitably complex issue of climate change. Far be it from me to judge whether this blueprint will do the job. But here are a few of my first impressions:

A scientific problem, a political solution: The Intergovernmental Panel on Climate Change has estimated that to have a 50% chance of preventing the worst effects of global warming (and keep warming below 2 degrees C), developed nations as a whole must cut emissions by 25-40% from 1990 by 2020 levels and 80-95% reductions by 2050. The emissions reductions targets recommended by USCAP, while not precisely comparable, fall short of that. Nevertheless, Fred Krupp of EDF said, “This gives us the certainty we need that the atmosphere will be protected.” I don’t know if he’s right, but it’s fitting that the blueprint was introduced in the Cannon House Office Building—it was clearly the product of  compromise.

The dilemma of rising energy costs: A key goal of the cap-and-trade program put forth by USCAP is to put a price on carbon emission, to provide economic incentives for companies and individuals (i.e., all of us) to cut back on use of polluting fossil fuels and make cleaner fuels more afforable by comparison. That makes perfect sense. But (and this is a big but) companies are understandably worried about the impact that higher energy prices will have on the economy, and politicians are fearful of being blamed for higher gas and electricity rates. So they want to raise energy prices—just not by too much! This is one reason why U.S. Cap calls for a massive giveaway of the permits to pollute, to avoid putting too big an immediate burden on companies or their consumers. One CEO says the hope is to create a “bearable slope” of rising energy prices. Do you thing Washington can get that right?

A victory for clean coal: I defy any layman to read the coal section of the blueprint and explain what it means. I doubt many congressmen will be able to understand it. (Here’s a sample sentence: “Require all new coal and other solid fueled facilities emitting more than 10,000 tons of CO2 per year that are initially permitted after January 1, 2015, to emit no more than 1,100 lbs of CO2 for MWh; and require all new coal and other solid fueled facilities above this size threshold that are initially permitted after January 1, 202, to emit no more than 800 lbs of CO2 per MWH–provided that USCAP’s CCS direct cash payment funding recommendations are adopted and provided further….etc etc) Trying to translate all that into English, Jim Rogers, the CEO of coal-burning Duke Energy, said that USCAP has concluded that clean coal technology is crucial to solving the problem of global warming. Not only does the U.S. have abundant supplies of coal, he noted, but so does China, whose economy is growing fast and energy hungry. So USCAP calls for massive subsidies for clean-coal plants and rapid adoption of rules to permit the capture and storage of CO2 in underground caverns. “We cannot take coal off the table,” Rogers says. “We must find ways to remove CO2 from coal use.” Good luck.

No news on nukes: Exelon, GE, NRG Energy, Siemens and other big companies in USCAP  believe that nuclear energy should be a key part of the low-carbon energy mix of the future. The enviros won’t go there. So there is a barely a word about nuclear power in the blueprint. This will be a big issue for Obama and the Congress to resolve.

Offsets, global and domestic: These are allowed in substantial numbers, to help hold down energy prices. “Offsets are an important part of the blueprint,” said Bob Lane, CEO of John Deere. The idea here is that companies that find it too expensive or technologically difficult to cut their own emissions can pay others to cut theirs. Farmers could be paid to trap methane gas given off by cows and pigs. Poor people in the developing world could be paid to preserve forests. This is controversial, but probably a good idea, provided the offsets are determined to be real, additional, measurable, enforceable and permanent–no easy feat.

The bottom line: USCAP and Congress are trying to do something that’s really, really, really hard—engineer a dramatic transformation of the U.S. company in ways that aren’t needlessly disruptive. The goal, all agree, is to move from an economy that relies on low-cost, high-carbon fossil fuels (oil and coal) to one that runs on high-cost, low-carbon fuels (wind, solar power, geothermal, and, yes, clean coal).

The politicians and CEOs want to move slowly. The science tells us to move fast. Therein lies the problem.

Jeff Immelt of GE and Jonathan Lash of WRI introduce USCAP two years ago.

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