Monday, October 30, 2006

Mind the Gap

"Mind the Gap"

... says the loudspeaker at the Heathrow Express Train last week, reminding me not to step into the gap between train and platform.

Well, this post is on a different type of gap. As entrepreneurs, we often deal with gaps, and gap filling, but an article in the NY Times today identifies the gap in research funding to come up with cleaner technologies.

From the article:

"Cheers fit for a revival meeting swept a hotel ballroom as 1,800 entrepreneurs and experts watched a PowerPoint presentation of the most promising technologies for limiting global warming: solar power, wind, ethanol and other farmed fuels, energy-efficient buildings and fuel-sipping cars.

“Houston,” Charles F. Kutscher, chairman of the
Solar 2006 conference, concluded in a twist on the line from Apollo 13, “we have a solution.”

Hold the applause. For all the enthusiasm about alternatives to coal and oil, the
of limiting emissions of carbon dioxide, which traps heat, will be immense in a world likely to add 2.5 billion people by midcentury, a host of other experts say. Moreover, most of those people will live in countries like China and India, which are just beginning to enjoy an electrified, air-conditioned mobile society.

The challenge is all the more daunting because research into energy technologies by both government and industry has not been rising, but rather falling."

This article refers to today's report from Her Majesty's Treasury (i.e. Tony Blair's administration). I haven't read it all yet, but here is a quote from Mr. Stern, the author:

"What are the costs and benefits of taking action? The costs of removing most of that risk, getting to 550 or below, are around 1% of GDP per year. The cost could be above or below 1% depending on policies, technological progress and ambitions but would be in this region. This is equivalent to paying on average 1% more for what we buy - the price rise for carbon intensive goods would be higher and for low carbon intensive goods would be lower – it is like a one-off increase by 1% in the price level. That is manageable; we can grow and be green."

OK, first, he is talking about getting to 550 ppm of CO2, which is an improvement over "Business as Usual" and, in their estimates, puts the earth in the position to have a 50:50 chance that global average temparature increases over the next century will be less than 3 degrees C above pre-industrial levels. We are currently at 430 ppm and if Business continues "as usual" then we could hit levels that give a 50:50 chance of over 5 degrees C. In the 550 ppm scenario, CO2 concentrations would peak in 15-20 years at that level, and then begin to fall.

Second, it is always wise to be wary of percentages, and mindful of where the money is supposed to originate. So, he says 1% manageable... but it is serious money. The world GDP these days is about $60 trillion (US is about $12 trillion). So 1% is $600 billion a year. That is twice the size of Wal-mart, and about the same size as the entire Australian economy. As Senator Dirksen supposedly said "A billion here, a billion there, and pretty soon you're talking real money. " The NY Times quotes John Holdren of Harvard as saying the US has a $12 trillion capital investment in then next 20-30 years. That, my friends, is real money.

Back to my original theme, now, of "minding the gap." So it is going to take $600 billion of investment/year to hit this target. How are we doing now? Well, the NY Times article says US is currently at $3 billion in federally funded research. If you take the 1% level for USA, it would be a $120 billion/year target. That looks like a pretty major gap we need to mind. The NY Times (remember who we are dealing with here) is not optimistic that private industry or entrepreneurs will solve the problem, although it lays out where some of the gains may be achieved (conservation, solar, etc.). The gist of the article is that we need a bold national program (and implicitly new leaders) to make this happen. Think the Space Program.

Maybe. I am not so sure. The big bold program certainly has emotional appeal (and is of course another way to avoid any real individual initiative or action). Just as I have articulated my concerns with Sachs's big plan to end poverty, I am also concerned about "big programs" here. What I think we need is lots of experimentation. Getting rid of perverse subsidies when they protect out moded and harmful industries. Encouraging conservation. Encouraging ordinary people to take action and giving them incentives to do the things that will have the most impact. Lots of innovation in markets around the world. If there is the political will to increase federal research on clean technologies, great. But lets not sit around waiting for the government to solve this.

Big programs tend to get run by governments. Sorry, I am skeptical. This is not a space race and we aren't trying to beat the Soviets. The enemies of our world are poverty, disease and pollution. "Think globally, act locally" is not a mantra for the big program. Progressive government policies are needed to modernize legal rules to reflect desired market outcomes (emissions trading, "take back" laws, health insurance coverage). Then government's job is to stay out of the way. I'd still rather have many bands of entrerpreneurs working on this than a big policy team lead by Al Gore. But if Al wants to invest in a clean tech venture fund or contribute to a microfinance institution, that's great. Maybe this too is an "inconvenient truth"... that we can't rely on government to mind the gap. We all must mind the gap, and apply our multiple skills, passions and assets to fill it.

Addendum 11/16: Paul Graham (of whom I am a big fan) recently posted an essay of the same title on his site. It is on a different "gap", but it is, as always, an interesting and provocative essay.

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