Japan’s nuclear crisis makes it harder to prevent climate instability

The short-term human and economic costs of the Japanese earthquake and tsunami are staggering.

The long-term repercussions could be worse.

That’s because, even if the situation does not deteriorate any further, the fires, explosions, radiation leaks at the Fukushima Daiichi nuclear plant will  lead to greater scrutiny–and higher costs–for new nuclear plants.

That will make it harder to develop low carbon energy to replace fossil fuels and avert potentially catastrophic climate change. [click to continue…]

Social funds: BP, the 1960s, and greed

Recently, after posting a column about BP and socially responsible mutual funds (See Social Funds and BP: How embarrassing!)  I heard from Adam Kanzer, who is managing director and general counsel at Domini Social Investments. While Domini has never owned shares of BP, Adam and I began a conversation about the role  of socially-responsible mutual funds. Adam, who has been in the fund business for twelve years, is a smart and committed executive, but we don’t always agree, so we decided to engage in a dialog about social funds.

Adam Kanzer
Adam Kanzer

Marc: Adam, let’s start with BP. Why did Domini exclude the company? Do you hold any other oil or coal companies?

Adam: Domini has consistently excluded BP from our portfolios because of our concerns about their safety record. Our initial review followed the Texas City explosion in 2005, but our decision was quickly reinforced by the Prudhoe Bay spill the following year.  We met with BP to discuss these and related issues with them. And each time we revisited BP, we found more violations.

We’re looking to identify the key sustainability challenges each company faces. For the oil and gas industries, worker safety and environmental compliance are among a handful of core issues we consider.  I should also note that we have consistently excluded Transocean and Halliburton, both of whom played a role in the Deepwater Horizon project. In addition we have also consistently excluded Massey Energy, the other current poster-child for disaster, as well as Toyota for substantial safety, employee relations and human rights concerns.  We discuss these decisions on our website. And yes, we do hold other oil and gas companies, although we set a high bar for entry. We do not invest in companies whose core business is coal mining.

Marc: Any thoughts on why BP was so widely held by other socially-responsible funds?

Adam: As CEO of BP, Lord Browne made very important statements about the reality of climate change at a time when others in his industry were denying its existence. That was important. In addition, BP has been committed to transparency on its social and environmental performance. I can’t speak for other firms, but I can see how those factors may have led some to hold BP. We felt that the safety and environmental issues outweighed these positives.

If a fund’s benchmark is heavily weighted towards oil, then an SRI manager will need to consider that. This tyranny of the benchmark certainly led many to hold BP and other oil companies that in a perfect world they would have preferred to avoid.

Which brings me to the important question that I have not heard – why did all of the so-called ‘mainstream’ investors buy BP? Why did investors allow this company to become one of the largest in the world by market capitalization? At least social investors weighed these issues and came to a decision. The rest of the market acted as if there was no problem.

Marc: That’s an excellent point, and it makes me wonder why people pay mutual fund managers such high fees. They missed the housing and Wall Street bubbles, and didn’t see or care about the safety issues at BP. Clearly most  funds aren’t very good at managing risk.

Turning to another topic, many SRI funds have their roots in the anti-war movement of the 1960s and 1970s as well as in faith-based investing. So funds like Domini exclude companies that make weapons, alcohol, tobacco and nuclear power. My question is, why? Let’s start with weapons. Don’t we need companies that make weapons in the post 9/11 era?

Adam:   First, it is important to understand that we divide those industries into two general categories – companies that provide addictive products and services, and companies whose products contribute to geopolitical instability. We place military weapons manufacturers and nuclear power in the latter category. We do not consider investments in addiction and global instability to be productive uses of capital.

National defense is too important to be placed in the hands of the same system that brought us the financial crisis. When Eisenhower issued his warnings about the growth of the military-industrial complex, he wasn’t questioning our need for a strong national defense. Yes, we need weapons, but do we need publicly traded companies manufacturing weapons? Are the capital markets an appropriate mechanism for providing these goods, or have the markets distorted our national priorities? That’s a critical debate our nation needs to have.

There are also categories of weapons that violate international humanitarian law because they cannot distinguish between military and civilian targets. These include landmines, clusterbombs and nuclear weapons. These ‘products’ make the world more dangerous, and landmines have caused incalculable misery to innocent civilians – including children – around the world. As investors, we have a responsibility to choose wisely. Our Funds’ shareholders choose not to profit from these violations, so we exclude these manufacturers and companies that manufacture nuclear weapons delivery systems.

Marc: What about nuclear power? Some environmentalists, notably Stewart Brand, say we need to seriously consider nukes in light of the climate crisis? [click to continue…]

PSEG’s Ralph Izzo: Greening the garden state

Before we discuss big issues like global warming, carbon pricing and renewable energy, I toss a couple of “lightning round” questions at Ralph Izzo, the chairman, president and CEO of  New Jersey-based PSEG, a $13.3-billion a year energy company with strong commitment to solar power and action to curb climate change.

Izzo, Ralph1First, Yankees or Mets? Izzo grew up in Queens (Mets country) and pitched for the baseball team at Columbia University (Yankee territory), where he earned an B.S. and M.S. in mechanical engineer and a Ph.D in applied physics. “Yankees, Knicks, Rangers, Giants,” Izzo replied. He’s still a big sports fan.

Second, Democrat or Republican? After a stint as a research scientist at the Princeton Plasma Physics Laboratory, Izzo worked as a science fellow in the office of Sen. Bill Bradley, a New Jersey Democrat, and then as an energy-and-tech policy adviser to New Jersey Gov. Tom Kean, a Republican. “Independent,” he said. “Pretty much down right down the yellow stripe.” True enough–he’s given money to George Bush and Hillary Clinton.

Third, nuclear power or “clean coal”? Much as it would be nice to light up the world with wind, solar or geothermal power, odds are that the U.S. will need nuclear power, coal or natural gas to provide baseload (i.e., round the clock) electricity for the foreseeable future. Izzo, as  a utility CEO and a scientist, gave nuclear his qualified endorsement over clean coal.

“The technology is in existence already,” he said. “It has a more benign environmental footprint. It doesn’t have the mercury, NO2, SO2 or carbon baggage. Having said that, all of our investments right now are in natural gas.” [click to continue…]

Nukes: Why small is beautiful

If anyone tells you they know what building a new nuclear power plant is going to cost, be skeptical.

No one has built a commercial nuclear power plant in decades in the U.S. During the 1970s and 1980s, cost overruns derailed more than 100 reactors. (Ever-increasing regulatory burdens and sky-high interest rates drove up costs, too.) In part because no reactor has built here in so long, no bank or group of banks wants to take on the risk of lending more for a new plant. That’s why the Southern Co., which plans to build two new reactors in Georgia, needs the $8.3 billion in U.S. government loan guarantees announced last week by President Obama. While all the other worries swirling around nuclear power—what to do with the waste, fear of proliferation, the threat of terrorism, safety and the rest—play some role, the most important thing standing in the way of a so-called nuclear renaissance in the U.S. is that building big new plants costs too darn much money.

And yet, if we want to stop burning coal, the dirtiest fossil fuel, to generate baseload electricity, we need to explore the nuclear option. That means finding ways to bring down the costs.

One option? Build smaller nukes.

Hyperion's small underground reactor, compared to a conventional nuclear plant
Hyperion's 12-ft tall underground reactor, compared to a 170-foot high above-ground conventional plant

Small nukes–sometimes called backyard nukes, because some of them could literally be buried in a suburban yard–were the topic of an excellent front-page story last week in The Wall Street Journal (Small Reactors Generate Big Hopes, subscription req.) and a panel discussion the following day at the Platt’s nuclear energy conference in Bethesda, Md.  Small nukes are a hot topic right now because three utility companies–Tennessee Valley Authority, First Energy Corp. and Oglethorpe Power Corp.–have agreed to work with Babcock & Wilcox, a longtime industry supplier, to get a small reactor design approved by the U.S. Nuclear Regulatory Commission.

The Babcock & Wilcox reactor, called mPower, would generate 125 to 140 megawatts of power, about a tenth as much as the big plants being proposed by the Southern Co. and others. Other modular nukes are even smaller: NuScale Power, a venture-funded startup, wants to build a reactor that’s 65 feet long and 15 feet in diameter, capable of generating 45 MW of power. Another startup, called Hyperion Power, is touting  a 25MW reactor, which would be compact enough (5 feet across by 12 feet high) to fit in a pickup truck, yet powerful enough to supply about 20,000 homes. [click to continue…]

NRDC’s Frances Beinecke: Act now on climate!

FGB Book Portrait Wood (IMG_8241_1)Just last week, Frances Beinecke, the president of the Natural Resources Defense Council, gave a speech to a Chicago business audience and the first question went something like this: I read the Wall Street Journal, I still don’t believe in climate science and I want to hear the full  story.

Beinecke’s new book, Clean Energy Common Sense: An American Call to Action on Global Climate Change (Rowan & Littlefield, $9.95), is aimed at those who are skeptical–or at least curious–about the climate change debate. It’s a slim (106 pages), straightforward, easy-to-read argument that  that attempts to connect the climate issue to everyday concerns like jobs, the economy and national security.

“When you go out to Gary, Indiana, Cleveland or Chicago, people are still uncertain,” Beinecke said, as she unveiled the book at the National Press Club in Washington.” They’re not clear on what the science is, what the solutions are, what the threats are, what the impacts are.”

And so Beinecke, as you’d expect, makes the case that the problem is dire, the solutions affordable and the benefits tangible–new jobs, less reliance on imported oil and a livable planet.

To her credit, though, she’s willing to go beyond the what’s-in-it-for-you argument and describe the climate crisis as what it is–the overarching moral issue of the moment, and one requiring immediate action:

Global climate change is the single greatest environmental challenge of our time. And yet, it is far more than that. It is a humanitarian challenge. It is an economic challenge. It is a national security challenge. It is the great moral challenge of our time.

If only more political leaders would frame the issue that way, instead of appealing only to the narrow self interest of voters. [click to continue…]

It’s time to rethink nukes

If climate change is the greatest threat facing mankind, what are the odds of the big environmental groups rethinking their longstanding opposition to nuclear power?

They appear to be slim. Here’s what Environmental Defense says on its website:

Serious questions of safety, security, waste and proliferation surround the issue of nuclear power. Until these questions are resolved satisfactorily, Environmental Defense cannot support an expansion of nuclear generating capacity.

And this comes from the Natural Resources Defense Council website:

New nuclear power plants are unlikely to provide a significant fraction of future U.S. needs for low-carbon energy. NRDC favors more practical, economical and environmentally sustainable approaches to reducing both U.S. and global carbon emissions, focusing on the widest possible implementation of end-use energy-efficiency improvements, and on policies to accelerate commercialization of clean, flexible, renewable energy technologies.

Supporters of nuclear energy—including those who strongly support climate regulation to curb emissions of global warming pollutans—say that doesn’t make sense.

“They (environmentalists) love to hate the biggest thing that can move the needle with respect to climate change,” says David Crane, the chief executive of NRG Energy. NRG is a member, with NRDC and EDF, of the U.S. Climate Action Partnership, an alliance of big companies and environmental groups that back a cap-and-trade program to regulate greenhouse gases.

Crane spoke last week during a lively discussion of nukes led by my colleague David Whitford at FORTUNE’s Brainstorm Green conference about business and the environment. I wish we’d invited an EDF or NRDC representative onto the panel, but the focus was money, not safety, security or waste. David began the conversation by inviting everyone to “consider the evidence and think anew about something about which many of us had made up our minds.”

Good idea. Many years ago, I covered protests again the Seabrook nuclear power plant in New Hampshire for a left-wing publication. My sympathies were with the protestors. Now I’m firmly undecided, and determined to learn more. Given the threat of climate change and the safety record of nuclear plants in the U.S. since Three Mile Island—especially compared the alternative of mining and burning coal—it seems like the right time to rethink nukes.

Here’s what the directors of the national energy laboratories said last year in a report called A Sustainable Energy Future: The Essential Role of Nuclear Energy:

Today, nuclear energy provides 16 percent of the world’s electricity and offers unique benefits. It is the only existing technology with capability for major expansion that can simultaneously provide stability for base-load electricity, security through reliable fuel supply, and environmental stewardship by avoiding emissions of greenhouse gases and other pollutants. Furthermore, it has proven reliability (greater than 90 percent capacity factor), exemplary safety, and operational economy through improved performance.

One of the signatories to the report was Steven Chu, now the energy secretary.

Here are some things I heard during the panel:

As thing stand now, we are unlikely to see the so-called nuclear renaissance that was talked about just a couple of years ago. The global economic slump is the reason why. Lenders are more risk-averse than ever, and few businesses need more capital and pose more risk than new nukes. Demand for electricity is slowing because of the recession. And natural gas prices are down, making it easier to meet new demand for electricity by building natural gas plants.

The U.S. government has set aside about $18 billion in loan guarantees for nuclear plants. That will underwrite perhaps three plants, our experts said. “I’m convinced that there will be three nuclear power plants built in the U.S. in the next 10 says,” said Kevin Book, a partner at ClearView Energy Partners, a research and consulting firm.

Beyond that, it’s anybody’s guess. The utility industry wants to build more—there are 24 applications for new nukes pending at the NRC, all of two to be located near to existing sites, where local support for nuclear energy is strong. No new plant has been approved since the 1980s. By contrast, there are 45 plants now under construction outside of the U.S., most in China, India and Korea, according to Book.

Like beauty, “clean” energy is in the eye of the beholder. Notice how the NRDC statement above says the group would prefer clean and renewable energy to nuclear. Well, Alan Hanson, an executive with Areva, the big French nuclear power company, says that the nuclear waste issue is closer to being solved than, say, the solar waste issue.

France, where more than 80% of the electricity comes from nuclear power, uses a safe and sophisticated system to recycle spent nuclear fuel, Hanson says. (You wouldn’t expect him to say anything else, but still…) Nuclear waste can be stored on the sites of plants “for the next 500 years in we want,” he said—plenty to time to ease the transition to a renewable, low-carbon energy economy.

By contrast, he says, burning coal creates not on CO2 but mercury and other pollutants. And many solar photovoltaic panels are made of cadmium, among other things, for which there’s no recycling plant. “I don’t know of any part of the electricity generating world that treats its waste as well as the nuclear industry does,” Hanson said.

The politics of nuclear are complicated. Chu, who’s probably the smartest guy in the Obama cabinet, supports nuclear energy but Carol Browner, who’s an experienced Washington power player (no pun intended) is said to be a strong opponent. Liberal Democrats on Capital Hill—Nancy Pelosi, Henry Waxman, Barbara Boxer, Harry Reid—also oppose nuclear power. Given a choice between nuclear and coal as a source of baseload power, they’re likely to favor coal.

Crane said: “Right now the dominant wing of the Democratic Party knows they need to accommodate the coal wing of the Democratic Party in order to get energy and environmental policy passed.” That leaves nuclear out of the deal-making.

resident Obama hasn’t said much about nuclear. It may well be that technology breakthroughs in solar, geothermal, wind or battery storage will mean that we don’t need nuclear energy as a source of low-carbon power. But until those breakthroughs come along, shouldn’t we keep the nuclear option open?

“I’m a slut for change”

That’s how author and sustainability guru Paul Hawken responded when I asked him during FORTUNE’s Brainstorm Green why a small-is-beautiful guy agreed to work for huge companies like Wal-Mart and Ford. And I like to think that’s why nearly 300 business executives, NGO leaders, activists and government types came to our conference on business and the environment earlier this week. They were a diverse and occasionally disputatious group, which is exactly what we want: We had speakers from Greenpeace and the Rainforest Action Network, as well as Big Oil , the nuclear industry and American Electric Power, the nation’s No. 1 emitter of global warming pollution. But while there was disagreement over what path to take, there was broad consensus that business needs to find ways to become more sustainable.

Here are some of my takeaways from the event. One caveat—the quotes below were taken down on the run and may not be word-for-word perfect but they are close.

Bill Clinton doesn’t mind getting his hands dirty. Where do you find the former president these days? Occasionally, mucking around in the waste of cities like Lima, Mexico City and Lagos. “Whenever I think of an urban landfill, I see it not just as an eyesore and a contributor to global warming but a source of great wealth,” Clinton said, during the closing plenary. His Clinton Global Initiative on climate change, he explained, is training scavengers in Lima to be recycling workers, given them a salary and health care and encouraging them to become part of a “new industry in glass and metals.”

Clinton’s speech was a state-of-the-union style laundry list, long on details/solutions. He got all charged up about energy efficiency (hard to do) as he talked about retrofitting the Empire State Building, described extensive efforts to get cities to curb their carbon emissions and explained how he is helping to  make college campuses more efficient. “The most important thing you can do if you are not a member of the U.S. Congress,” he told the crowd, “is to show that the change we are all seeking is good economics.” He had a couple of odd ideas, suggesting that the states of Nevada and Arizona or maybe a Caribbean nation become “energy independent” to show the world that it’s possible. Clinton looked good, by the way—he wore a pair of Texas cowboy boots and hustled out of the hotel after his speech and a photo session to squeeze in a round of golf.

Some big problems, corporate America can’t solve. Fisk Johnson of SC Johnson, Jeff Hollender of Seventh Generation, Bill Valentine of HOK (big architecture firm) and Carl Bass of Autodesk (design company) joined me for a panel called Re-Imagining Consumption. The question put before them was simple but important: How can companies grow their revenues and profits while shrinking their environmental footprint? I thought we’d get into a conversation about cradle-to-cradle products that companies sell, or new business models like ZipCar. But we veered into a discussion of overconsumption after someone mentioned he oft-cited fact that Americans make up roughly 5% of the world’s population and consume 25% of its resources. That’s obviously a problem, and since companies are invented to solve problems, I ask them if there is a business opportunity there. They couldn’t see one although Bill Valentine said HOK often asks its clients whether they really need a new building, Carl Bass said  Autodesk is incorporating sustainability questions into its software, and Fisk and Jeff both talking about “greening” their products and packaging.  The truth us, it’s hard to imagine even progressive companies (except for recycling firms) coming up with products, services or new business models around buying less stuff. This tough job is probably best left to parents or religious leaders.

Environmentalists should reconsider nuclear power. I’m told there was a long and animated dinner conversation one night during which two leading thinkers of the sustainability movement—Janine Benyus of biomimicry fame and Ray Anderson of Interface–peppered Alan Hanson, an executive from Areva, the big French nuclear power company, with probing questions about nuclear power. I was pleased to hear that because I’ve thought for some time that environmentalists need to rethink their almost-religious opposition to nuclear power. (I’m going to write about this in more detail next week.)

If the problem of climate change threatens the very existence of human life on this planet (and it does), shouldn’t we reconsider nukes? Of course we should. We’re going to need baseload power and while a combination of efficiency, renewables and battery storage might get us where we need to go under a best-case scenario, I don’t want to bet the planet’s future on a best-case scenario. It’s likely we’ll face a choice between nuclear and so-called cleaner coal. I’m not sure where I come down on that.

During a panel on nuclear power (read David Whitford’s account here) that focused on its costs, I learned that Steven Chu, the energy secretary, is an advocate for nuclear while Carol Browner, the climate czar, is an opponent. President Obama has punted on the issue—he hasn’t said much of anything, at least according to our panelists. While Browner’s the more powerful figure in D.C., Chu is a brilliant and impressive guy, not to mention the only cabinet member with a Nobel Prize. I’d love to be a fly on the wall when they and Obama get together to talk about nukes.

I’m still not convinced about green jobs. Van Jones, the White House green jobs czar, spoke at Brainstorm Green and he managed to be both inspiring and utterly charming. But he couldn’t come up with a clear-cut definition of a green job. That’s not surprising. Consider the farmer who grows corn for popcorn. He’s a mere farmer. His buddy up the road who grows corn for ethanol? Green job, I presume.

Clinton, too, has hopped on the green jobs bandwagon: “I’ve always believed that work is the best social program,” he said. “Saving the planet from the threat of climate change will create more jobs, more ideas, more interdependence than anything else we can do.”

Hmm. Fred Krupp of the Environmental Defense Fund said the best economic studies about the impact of a cap-and-trade program to regulate greenhouse gases project that the long-term impact on GDP will be very, very slight. But if GHG regulation has even a slight negative effect on GDP, how can it create more jobs?

It’s time to stop feeling guilty about business travel. Brainstorm Green was held at the Ritz Carlton in Laguna Niguel, California—a spectacular place overlooking the Pacific. We had some fabulous meals—prepared by organic chefs—and I got up early to run (a little) each day. At night, I opened the door to my hotel room and fell asleep to the sounds of the waves and an ocean breeze.

As it happens, we were at ground zero for the crisis in business travel. Next door was a St. Regisl where AIG held a meeting last fall that made national news and led to the cancellations of hundreds of business meetings. Luxury hotels and their working-class employees are suffering. What’s good about that?

More important, there was value in getting 300 people together in a relaxing place for a couple of days to talk about things that matter. We learned. We met new people. We built relationships. We showcased leading thinkers and doers, perhaps inspiring others. Maybe a startup that needed money raised some. We may live in an always-connected, everything-linked world, but you can’t do those things very well on email or over the phone or in a video conference.