“It was a tough year for the environment, and a tough year for environmentalists, especially in the U.S.”

So said Jonathan Lash, the CEO of the World Resources Institute, one of Washington’s most respected environmental groups, as he began his annual look at the state of the environment in the new year.

2010 was indeed a dismal year–marked as it was by record warm temperatures, natural disasters linked to climate change, the BP Deepwater oil spill, the Massey mine disaster and, most importantly, the defeat of  climate-change legislation in Congress.

Given today’s political realities, it was hard for Lash to summon much optimism about 2011,  at least when it comes to U.S. policy. But he was able to identify pockets of progress in the business world and elsewhere–particularly in China–that could, over time, drive the decarbonization of the global economy required to curb climate change.

Policy will be needed–specifically a price on carbon, in some form–but if and when governments finally manage to peenalize companies for their emissions,  they will  set off “an avalanche, a shift that will go much faster than policy requires” as businesses compete in a low-carbon world.

“My premise has always been that once we begin the process of decarbonization, there will be business and economic incentives” that will drive rapid change, Lash said.

But that carbon price is nowhere on the near term horizon in the U.S. So, for now, environmentalists will have to look to the private sector and overseas if they want to find reasons for hope.

Here are some highlights from Lash’s talk. His presentation is available on this WRI website.

Why EPA won’t solve the climate problem. EPA is in the process of regulating CO2 emissions from big power plants, as well as emissions of toxics; together, those programs have the potential to force the retirement of aging coal plants.

But, Lash acknowledged:  “There is a thunderous chorus from much of industry demanding that these regulations be blocked.”

More important, industry opponents are getting their way with Congress. In an op-ed in The Wall Street Journal, Fred Upton, the new chairman of the House Energy and Commerce Committee, teamed up with Tim Phillips, head of an industry group called Americans for Prosperity, to describe EPA’s plans to regulation global warming pollution as “an unconstitutional power grab” that will “kill millions of jobs.” Upton was once a more-or-less moderate voice on climate;  his rush to the right is a sign of how the political climate has changed, as the NRDC’s Pete Altman reported today.

Even under a best-case scenario, Lash said, there’s scant hope that current U.S. policies will enable President Obama to keep his promise, made at the Copenhagen climate talks, to reduce U.S. emissions by 17% by 2020. Getting there would not only require that all current laws be strongly enforced, but that other agencies, like the agriculture and interior departments, take aggressive action to mitigate emissions. (Click on the chart below for more detail.)

What’s more, as Lash acknowledged: “The science says we should be doing way more than what was agreed to in Copenhagen.” The reluctance of the U.S. to enact a strong climate policy is “the biggest restraint” right now when it comes to reaching a global accord. That’s depressing.

Now the good news.

Electric cars: They’re arriving in the U.S. market in small numbers, but have the potential to become mainstream. Lash, who advises GE on its EcoMagination efforts, noted that the company has promised to buy 25,000 electric cars. “Basically, their whole sales force will be driving electric vehicles.” Currently, the cars are expensive, but if gas prices rise and fleet sales drive down the manufacturing costs, they could appeal to many more drivers.

China: WRI now has more than a dozen people based in China, and Lash said the move to clean energy there is rapid and real. One example: High speed rail. China is investing $120 billion in the next two years, he said, and soon will have more high speed rail corridors–where trains travel more than 200 miles an hour and soon will go faster–than the rest of the world combined. “This is a spectacular new technology,” Lash said. China still burns lots of coal, of course, but it also intends to export solar and wind technology globally.

Green advertising: Even as the political winds seem to shifting against climate policy and environmental action, Lash notes, big companies are talking more and doing more about their environmental efforts. “Why is it that the politics are going one way, and the corporate advertising and commitments are going another?” he asked. Business executives tell him that “their customers care about whether companies are environmentally sensitive and products are environmentally preferable.”

This isn’t trivial. It’s a message that a clean environment can go hand in hand with  healthy businesses, jobs and  economic growth.

Take the creativity of countless startups, the heft of a big corporation, $200 million in prize money, savvy venture capitalists, the power of digital media and the wisdom of crowds.

Put them together and you have the ingredients of GE’s Ecomagination Challenge, a promising way to speed innovation towards a smart grid, clean energy and eco-friendly homes, buildings and cars.

Promising…because we won’t see results for a while.

Unveiled with fanfare by GE chief Jeff Immelt in Silicon Valley in July, the Ecomagination Challenge has generated more than 3,000 entries and 60,000 comments and votes. This week, GE will announce the top vote-getters and next month it will announce the winners, which are selected by a panel of expert judges.

GE and its four venture capital partners–Emerald Technology Ventures, Foundation Capital, KPCB and Rockport Capital Partners–have said they will invest $200 million into the most promising startups and ideas. Grants could range from $100,000, to further research a new idea, up to significant equity investments in existing startups, which would also get marketing and manufacturing support from GE. GE already has significant investments in clean tech companies like A123 Systems, which makes batteries, and Southwest Windpower, which makes small-scale wind turbines. This is an effort to find more.

How’s it going? Some of the ideas seem, to put in kindly, long shots. An electric generator powered by garlic? (See it on video here.) Rotating houses? A “Wind Turbine Electricity Generation Without the Wind.” What’s next: solar panels that don’t need sunshine?

Amidst the thousands of entries, several caught my attention, and the attention of voters:

Julie and Scott Brusaw

One is Solar Roadways, the  brainchild of a mom-and-pop couple in Idaho. Scott Brusaw is an electrical engineer, a former sergeant in the Marine Corps and a former Boy Scout scoutmaster, and his wife Julie Brusaw is a marriage and family counselor. They want to make roads out of solar panels, protected by a material similar to that used in the “black boxes” in airplanes. LEDs could be added to light up roads at night, and heating elements could be installed to melt snow, all powered by the sun. They’re even talking about putting sensors in the roads to warn drivers if animals are crossing. The Brusaws got a contract from the Federal Highway Administration to build a prototype in 2009, and he was invited to give an entertaining TEDx talk last spring in Sacramento.

Interesting, too, is Welectricity, which is described as “a social network that promotes household energy efficiency through behavioral nudges.” Think Facebook meets your utility bill. Electricity users could set up profiles, and their bills would be graphed and compared to one another. (You could send a boastful tweet when your bill is lower than your neighbors!) The idea comes from Herbert Samuel, an energy consultant from the Caribbean island of St. Vincent.

I was also struck by an entry called From Net Zero to Waste Zero which uses a combination of solar PV, wind and geothermal energy to design a low-cost house that lives off renewable power. (That’s an image of the house, above.) The idea comes from Sam Qin, a Canadian entrepreneur who coordinated the design of a zero net-energy house for the Canadian government during the 2008 Beijing Olympics.

Whether any of this is truly new–and, more important, scalable–is very much an open question. If we lived in a perfectly efficient economy, where any entrepreneurs could get a hearing at venture capital firms, and the best ideas would get funded, we wouldn’t need a competition like this. But we don’t, and that’s why new models for innovation–like the automotive X-Prize--are worth trying. If nothing else, GE’s challenge has spurred a lot of online conversation and positive buzz for GE.

Google Power Meter

Lord Kelvin said it more than a century ago: “If you cannot measure it, you cannot improve.”

Today, it’s become a business cliche: “What you don’t measure you can’t manage.”

In that light, and against the backdrop of the UN climate negotiations unfolding here in Copenhagen, Google, GE, The Climate Group and NRDC came together to call on governments around the world to provide people with real-time information on their home energy use.

Simply getting useful and timely information (as opposed to a monthly bill) about their electricity usage drives people to curb usage and reduce their greenhouse gas emissions by 5 to 15%, the companies said and studies show. When their usage is compared to their neighbors’, they cut back even more.

“This simple but bold call to action makes common sense,” said Steve Fludder, who oversees GE’s EcoMagination efforts.

The technology to deliver real-time information about electricity consumption — essentially, a meter and software — exists today and it’s not expensive.

GE makes so-called smart meters that it sells to electric utilities.  It is also developing a wireless home energy monitor to be sold to consumers that will measure electricity usage, let consumers know which gadgets or appliances are using power, and communicate with so-called smart appliances so that dishwashers or dryers can run during times of the day when electricity is cheaper. All this is part of the smart grid and smart home you’ve probably heard about.

“We ultimately have a vision of a zero net-energy home,” Fludder said. Of course, that would require the homeowner to install solar panels, or a small-scale wind turbine, or some other form of distributed power generation.

Google’s Power Meter is free software developed by google.org, the company’s philanthropic arm. It’s being tested by about 10 utilities around the world. The software also works with a number of home energy devices. Google partners that make devices include a British company called AlertMe and a company called Energy Inc. that makes The Energy Detective.

Dan Reicher, director of climate change and energy for Google, said  devices today are “available in the range of about $200 and the word on the street is that there are several devices that are on their way that are in the $50 to $100 range.”

“A smart meter in every home” makes sense, even if it doesn’t have quite the resonance of “a chicken in every pot” or “a car in every garage.” (Thanks, by the way, to Dan for the headline on this blog.) Below is a brief video from San Diego Gas & Electric, one of Google’s utility partners.

Let me state my bias upfront: I’m am admirer of GE and its chief executive, Jeff Immelt, and the company’s ecomagination initiative. GE and Wal-Mart are, as I have written, the most influential companies in America, and it’s great that they are serious about becoming more sustainable, and working with their customers and suppliers to do so as well.

But I can’t help but be struck by the extent to which GE’s clean-energy businesses depend on federal and state tax and regulatory policy, along with grants and loans from the government. Wind energy, solar energy, nuclear power, cleaner coal, smart-grid initiatives, energy-efficient appliances, compact fluorescent light bulbs—all of these either benefit from current policy, get stimulus money or Department of Energy grants, or stand to benefit if the climate-change legislation strongly supported by GE is enacted into law, or all of the above.

This is fairly obvious, admittedly, to anyone paying attention to the energy and climate debate, but it was brought home to me vividly last week, at a GE Ecomagination Forum that focused on GE Capital’s venture investments in clean tech startups. You can read more about GE’s venture business in this column I wrote for fortune.com, called GE Brings Good Things to Startups, and in an interview and podcast with Kevin Skillern, the managing director of venture capital for GE Energy Financial Services, which are available at Greenbiz.com. Since 2006, GE’s venture fund has smartly  invested about $160 million in 20 startups in such businesses as wind and solar power, batteries, energy-efficiency, smart grid and fossil fuels.

Of GE’s portfolio companies, the star performer and recipient of GE’s biggest investment – about $69 million – is a company called A123 Systems that makes advanced lithium ion batteries and appears to have a very promising future. A123 makes batteries for the transportation, utility and consumer markets, for such customers as Daimler, Chrysler, Volvo, Better Place/Renault, Black & Decker, AES and Procter & Gamble’s Duracell unit.  Investors alongside GE, which is A123’s biggest shareholder. include Sequioa Capital, ConocoPhillips, AES, Motorola and P&G. Google founders Larry Page and Sergey Brin drive electric cars powered by A123 batteries, as does Tom Hanks. Not a bad list of endorsements.

Here’s the thing, though. A123 has been given more than $600 million in grants, loans or tax credits  by the federal and state government to build a new plant in Michigan. They include a $249 million grant from the DOE‘s Electric Drive Vehicle Battery and Component Manufacturing Initiative, another  $100 million in refundable tax credits from the state, and $27.5 million more from the U.S. Advanced Battery Consortium. Separately, Nissan, an A123 customers, got a $1.6 billion loan to retool a factory to make electric cars and batteries. The climate bill will provide another boost to electric cars. And, according to the company:

A123 was born out of the research labs of the Massachusetts Institute of Technology and was funded initially with a $100,000 grant from the U.S. Department of Energy in 2001.

In other words, the taxpayer investment in A123 probably exceeds GE’s by a hefty margin.

Southwest Windpower, another GE portfolio company, also benefits greatly from government subsidies, as its CEO, Frank Greco, explained last week. Southwest is the

A Skystream turbine

world’s leading producer of  small-scale wind turbines, which it manufactures at factories in Flagstaff, Arizona, and in a joint venture in China. It’s got leading-edge technology and lots of growth potential. Southwest’s  grid-connected Skystream 2.7 turbine can generate power at rates comparable to what some homeowners and businesses pay for retail electricity–after you factor in a federal tax credit and, in California and some other states, generous, state rebates. In fact, the subsidies can bring the $15,000 or so cost of a turbine down to about $5,000, in a best-case scenario–best case, that is, for the owner of the turbine, the company and its investors, including GE.

The story is much the same for Soliant Energy, another company showcased by GE: Very promising technology, impressive management, heavy reliance on government policy.

I asked  Skillern, who manages GE’s  venture investments in energy, whether he was worried that the portfolio carried too much political risk. What if, unlikely as it seems, a free-market administration came to power in Washington? He acknowledged the issue but said he thought all of the companies could survive and even thrive without government backing, but that the government support would speed up deployment of their technologies.

In any event, the tax dollars backing GE’s venture portfolio may turn out to be well spent. If A123, Southwest Windpower and Soliant all do well, they will create thousands of “green jobs” and help the world deal with the climate crisis–thereby delivering benefits to all of us. That’s the logic behind the government support. What’s more, we all pay the hidden costs of burning fossil fuels, as my friend Matt Wald reported this morning in the New York Times:

Burning fossil fuels costs the United States about $120 billion a year in health costs, mostly because of thousands of premature deaths from air pollution, the National Academy of Sciences reported in a study issued Monday.

Goodness knows that the oil and gas industries get massive government subsidies as well.

None of this began with the Obama administration, it must be said. The Bush crew, remember, rescued Wall Street and bailed out GM and Chrysler. Increasingly, we’re seeing the government is trying to manage not just the broad economy, but industries and companies as well. Health care, in some form or another, may be next. How this experiment in industrial policy will turn out is anybody’s guess.

But it’s no wonder corporate CEOs, including GE’s Immelt, find themselves spending so much time these days in Washington.

General Electric and Wal-Mart are the two most important companies in America, for different reasons: GE’s reputation for management excellence means that its ideas spread widely, while Wal-Mart’s size and clout put it at the center of the consumer economy. Last week Wal-Mart announced its plans for a sustainability index, generating lots of excitement, and today GE releases a citizenship report that demonstrates that the $183-billion company is becoming not just cleaner and greener, but more open.

“We just crushed our energy consumption goals,” Bob Corcoran, GE’s vice president for corporate citizenship, told me when we talked recently about the report. “We have crushed our greenhouse gas emission goals. I feel very good about that.”

He added: “I’m sitting in a building right now” – GE’s corporate HQ in Fairfield, Connecticut – “that has solar panels on the roof.”

As you’d expect from the company that popularized the precision-driven Six Sigma approach to quality, GE’s citizenship report, its fifth, has no shortage of facts, numbers and metrics. But what struck me most about the report were the insights it offers into the changing GE culture.

GE is the No. 1 U.S. wind turbine maker

Before looking at the softer side of GE, a few hard facts.

On greenhouse gas and energy reductions, the report says:

In 2008, the Company reduced greenhouse gas emissions by 13% compared to 2004 levels. GHG and Energy Intensity have been reduced by 41% and 37%, respectively, compared to 2004. As a result, the Company achieved one of its three ecomagination goals in this area — to reduce GHG Intensity by 30% by 2008.

Of course, reducing “GHG intensity” isn’t as meaningful as reducing emissions in absolute terms. It’s noteworthy that GE did both.

The company also reports that sales of Ecomagination products, which are products identified by GE as helping to solve environmental problems, grew briskly, from $14 billion in 2007 to $17 billion in 2008. Ecomagination has had another big payoff, Jeff Immelt has told me—it makes people feel better about working at GE and helps attract new people to the company.

A key driver of the EcoMagination revenues is the wind turbine business acquired from Enron in 2002. According to the report:

GE is the number one wind turbine manufacturerin the U.S., and number two worldwide, with more than 8,700 wind turbines installed. Wind will be a $6 billion business for GE this year, up from $300 million when we bought it just six years ago.

Apart from all that, what the report shows is that GE is better than ever at listening to its critics, as well as to its own people. Pardon the jargon, but the company is becoming more of a learning organization.

As Corcoran put it: “The big change is probably that our ears are more open in more places.”

One example is the report itself: It includes comments from an advisory panel of outsiders, most from NGOs, who were invited to review an early draft of the report and recommend changes. The experts publish two pages of comments in the report, praising GE for paying greater attention to human rights and development issues this year, but saying that in the year ahead “should address how far its energy and climate commitments go in contributing to U.S. and global goals for climate stabilization.”

Here’s another way GE is tapping into the wisdom of crowds: It’s using “Treasure Hunts” in which its employees are enlisted to seek ways to save energy inside the company. Again, the driving notion here is that all intelligence does not reside with the senior execs of GE. (Watch this You Tube video of a 2008 Treasure Hunt at Universal Studios or read How GE’s ‘Treasure Hunts’ Discovered More Than $110M in Energy Savings at Greenbiz.com.)

More broadly, GE regularly convenes “stakeholder dialogues” where it brings in NGOS, including critics, to talk with the company about emerging issues. Recently, for example, the company convened a group in Washington to talk about how the world will adapt to (as opposed to mitigate) the impacts of climate change. Adaptation isn’t currently a business for GE, but you never know.

The regular conversations with outsiders have “helped us to really understand the impact that GE has, and can have, outside of our normal employee and customers relations,” Corcoran told me.

As Jeff Immelt puts in the report:

In the early years of my career, I had a typical businessperson’s reluctance to seek external opinions. A reset world brings a renewed opportunity to engage. Success in tomorrow’s markets means working with stakeholders to understand, predict, and shape our future environment and ways of living….Transparency and accountability will be more important than ever.

The evolution of GE—and Wal-Mart—around sustainability and corporate citizenship will eventually be recognized as one of the great business stories of this decade.

Solar panels on the roof of GE's headquarters

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.”