“My father once told me that I would never be successful because I have too much contempt for authority,” says Edward Tufte. “I think that’s been an enormously successful strategy.”
At 67, Tufte (pronounced TUFF-tee) defies easy categorization. He has been a university statistician and a public policy wonk. And these days, he’s more excited about turning bulldozers into sculpture than the abstractions of information analysis.
This August, U.S. airlines face their first big deadline to meet European Union rules on emissions linked to global warming. That’s when carriers landing in Europe will have to submit proposals to the EU on how they plan to track such emissions. This is a first step toward tough European “cap-and-trade” laws requiring airlines to either slash greenhouse gases or pay for permits to emit, starting in 2012. U.S. airlines are watching these developments anxiously, in part because they are already struggling with weak travel demand and yo-yo’ing fuel prices.
The Air Transport Assn. (ATA), which represents U.S. carriers, says the plan violates international law, and that the U.S. government is obliged to object. If the EU proceeds on its course, it faces a thicket of lawsuits, predicts Nancy Young, ATA’s vice-president for environmental affairs. “We adamantly oppose their scheme,” she says—adding that having to purchase credits will stifle funding for the very innovations airlines must develop to cut emissions.
Just how much new carbon costs might increase airfares is unclear. One aviation industry study estimates the annual operating costs of airlines landing planes in Europe will rise by billions of dollars if the EU enacts its plan. But green groups tell a different story. They point to an EU analysis that puts the average price increase for a cross-Atlantic round-trip ticket at just $6 to $56 by 2020, depending on the cost of carbon permits. The effect on prices is “within the range of fluctuations travelers are used to,” says Mark Kenber, policy director at the Climate Group in London.
Environmentalists argue that, compared with the auto and electric power sectors, airlines have had it easy when it comes to efficiency targets and carbon policies. Their special status dates back to 1997, when many countries enacted the Kyoto Accord, a global pact to cut greenhouse gas output. Kyoto didn’t set specific reduction targets for airlines or marine shippers, though both groups were asked to come up with their own plans. That’s because plane flights accounted for just 2% of total industrial emissions at the time, and because of murky jurisdiction issues when planes or ships cross national borders.
U.S. carriers have boosted their fuel efficiency by 31% since 1990 and have promised an equal gain by 2035. Airplane and engine builders, from Boeing (BA) and Airbus to General Electric (GE) and Rolls-Royce (RYCEY), are researching lightweight materials and plant-based jet fuel. Airlines are seeking streamlined flight paths to avoid wasting fuel. Still, because air traffic is growing so fast globally, the sector’s emissions are on track to more than double by 2035.
Outside the U.S., key carriers such as Air France-KLM (AFLYY), British Airways (BAIRY), Cathay Pacific (CPCAY), and Virgin Atlantic are supporting just the sort of carbon caps the ATA opposes. They’re making the case in the runup to the Copenhagen Accord, a process to replace Kyoto that will move into high gear in December. On May 24 the International Aviation Transportation Assn.—a global trade group—for the first time agreed to reduce emissions.
U.S. carriers, which consume 35% of the world’s jet fuel, may not be able to opt out of carbon limits much longer. The Waxman-Markey climate bill moving through Congress includes aviation in its gas reduction goals. “The writing’s on the wall,” says Jake Schmidt, international climate policy director at the Natural Resources Defense Council.
Aston is Energy & Environment editor for BusinessWeek in New York.
Beijing has big plans to curb pollution and start a cleantech industry. But the global recession and looming trade frictions will test its resolve
The Sun-Moon Mansion, Himin Solar Energy's headquarters in Dezhou
China’s unprecedented growth in recent years has come at a terrible price. Two-thirds of its rivers and lakes are too polluted for industrial use, let alone agriculture or drinking. Just 1 in 100 of China’s nearly 600 million city dwellers breathes air that would be considered safe in Europe. At a time when arable land is in short supply, poisoned floodwaters have ruined many productive fields. And last year, ahead of most forecasts, China passed the U.S. to become the world’s largest source of greenhouse gases.
The immensity of these troubles has produced a result that may surprise many outside China: The nation has emerged as an incubator for clean technology, vaulting to the forefront in several categories. Among all countries, China is now the largest producer of photovoltaic solar panels, thanks to such homegrown manufacturers as Suntech Power (STP). The country is the world’s second-largest market for wind turbines, gaining rapidly on the U.S. In carmaking, China’s BYD Auto has leapfrogged global giants, launching the first mass-produced hybrid that plugs into an electrical outlet. “China is a very fast follower,” said Alex Westlake, a director of investment group ClearWorld Now, at a recent conference in Beijing.
GOVERNMENT SUPPORT
Understanding they are in a global race, China’s leaders are supporting green businesses with policies and incentives. Beijing recently hiked China’s auto mileage standards to a level the U.S. is not expected to reach until 2020. Beijing also says it will boost the country’s share of electricity created from renewable sources to 23% by 2020, from 16% today, on par with similar targets in Europe. The U.S. has no such national goal.
While most environmentalists applaud these developments, China watchers are voicing two very different sets of concerns. Some question whether China will really stand by its ambitious targets and are worried by signs of backsliding as the recession in China’s key export markets drags down economic growth. Another group, interested mainly in America’s own industrial future, fears that China’s growing dominance in certain green technologies will harm budding cleantech industries in the U.S. After all, China’s emergence comes just as the Obama Administration is trying to nurture these same types of ventures, hoping to generate millions of green jobs. Many of these U.S. businesses will have trouble holding their own against low-price competitors from China.
Beijing’s green intentions will soon be put to the test. China is in the midst of the biggest building boom in history. A McKinsey & Co. study estimates that over 350 million people—more than the U.S. population—will migrate from the countryside into cities by 2025. Five million buildings will be added, including 50,000 skyscrapers—equal to 10 New York Cities. And as quickly as new offices and houses multiply, they are filled with energy-hungry computers, TVs, air conditioners, and the like, sharply increasing demand for electricity, which comes mainly from coal-powered plants.
Environmental groups say it is therefore critical that Beijing promote rigorous, greener standards. And to some degree, that’s happening. A government mandate states that by the end of next year, each unit of economic output should use 20% less energy and 30% less water than in 2005. Portions of Beijing’s $587 billion economic stimulus package are earmarked for cleantech. On top of that, in March the Finance Ministry unveiled specific incentives to spark solar demand among China’s builders. Included was a subsidy of $3 per watt of solar capacity installed in 2009—enough to cover as much as 60% of estimated costs to install a rooftop solar array.
USING WASTE HEAT
Steps like these will help Himin Solar Energy Group in Dezhou, Shandong Province. Founded in 1995 by Huang Ming, an oil equipment engineer turned crusader against the use of fossil fuels, the company is the world’s largest producer of rooftop piping systems that use the sun’s rays to heat water. Its eye-catching headquarters, the Sun-Moon Mansion, showcases these heaters, which Himin cranks out in immense volumes—about 2 million square meters’ worth each year, equal to twice the annual sales of all such systems in the U.S. Because its water heaters sell for as little as $220, they are becoming standard in new housing complexes and many commercial buildings across the country.
Broad Air Conditioning, based in Changsha, Hunan Province, is also set to profit as Beijing pushes toward its green targets. By using natural gas and so-called waste heat from other machines and appliances instead of electricity, Broad’s big chillers can deliver two to three times more cooling per unit of energy than a conventional unit. In a similar fashion, Haier, headquartered in Qingdao, Shandong Province, combines low-cost manufacturing and a variety of advanced technologies to create affordable, energy-sipping refrigerators and other appliances. During the 2008 Beijing Olympics, Haier supplied more than 60,000 such devices for visiting athletes and tourists to use.
As these and other domestic players bump up against technological obstacles, they can draw on the expertise of many of the world’s top multinationals. In return for access to its domestic market, Beijing asks such companies as General Electric (GE), DuPont (DD), 3M (MMM), and Siemens (SI) to share their technology, help upgrade their China-based supply chains, and spread industrial processes to make manufacturing more efficient. These aren’t simply green practices, says Changhua Wu, Greater China director of the Climate Group, a consultancy in London that partners with companies to combat climate change. “They’re best practices.”
GE, for example, has transferred expertise to Chinese partners in everything from wind turbine construction to the building of low-pollution factories. At the Beijing Taiyanggong power plant, waste heat from the combustion process is recycled, resulting in around 80% efficiency, more than double the rate of most conventional power plants in the U.S. The bulk of GE’s sales of turbines for power plants in China are the ultra-efficient models. David G. Victor, a Stanford University professor who has studied China’s electric grid, says some of the coal plants being built there are “much more advanced than those we see in the U.S.”
Wal-Mart Stores (WMT), which buys some $9 billion worth of goods in China each year from some 20,000 vendors, infuses its supply chain with the latest ideas about energy efficiency. For example, Chinese factories that work with Wal-Mart are obliged to track vast quantities of data on energy use and make the information available for audits. “Many Western companies can’t track their own energy consumption,” says Andrew Winston, consultant and co-author of the book Green to Gold.
TORPEDOING U.S. SOLAR?
China’s early achievements in cleantech owe a lot to collaborations such as these. The benefits: China cleans up its own pollution, and the government-backed initiatives in solar and wind help drive down the cost of renewable energy systems in countries around the world.
But there is a downside. The rock-bottom prices for made-in-China green technology could make it impossible for cleantech ventures in the U.S., Europe, or Japan to compete. How, for example, will they go up against Suntech Power, based in Wuxi, Jiangsu Province, the world’s lowest-cost manufacturer of standard solar panels? The U.S. boasts plenty of advanced technology. But any efforts by Washington to nurture this sector could be quickly undercut by a flood of Chinese-made solar panels. Such a deluge is likely if there is a big increase in public subsidies for rooftop solar systems. “What [that would] do is create 10,000 Chinese jobs,” says Roger G. Little, chief executive of Spire Corp. (SPIR), a leading U.S. maker of manufacturing equipment for photovoltaics. “If we import all the [solar] modules, it will obliterate U.S. manufacturing” in this area.
A similar scenario exists in the much heralded area of electric vehicles. BYD, headquartered in Shenzhen, started selling its first plug-in hybrid, the F3DM, last year. It beat Toyota (TM) and General Motors (GM), both of which are developing such “plug-ins,” and hit the market with a price tag they probably can’t match: just $22,000. Henry Li, a BYD general manager, says the company will roll out a version of the car in the U.S. in 2011. Chevy’s answer to this car, called the Volt, is expected to cost about twice as much and won’t be out until next year.
How did BYD pull off this coup? Part of it is just being the new kid on the block. Today’s automobiles, with their advanced combustion engines, are the most complex mass-produced goods ever made, assembled from thousands of highly engineered parts provided by a web of suppliers. It’s difficult for a Chinese startup to compete on such a sophisticated playing field. But the emergence of a new, green-vehicle category clears the way. BYD was able to break in by leveraging its background as a battery maker. When it ran into technical hurdles, the company could draw on a deep pool of inexpensive, well-trained talent at China’s top engineering schools. BYD is also a leader in pure electric vehicles, the logical next step. The government is now putting some muscle behind BYD’s push. It is heavily subsidizing electric-car sales in about a dozen cities—in a stroke, making China the world’s biggest market for such advanced vehicles. Its goal is to boost domestic output of battery-powered vehicles to a half million per year in 2011.
How Washington and the beleaguered U.S. auto sector might respond to a wave of inexpensive electric vehicles from China is difficult to predict. And it is also unclear how China’s cleantech efforts in cars, energy, and other areas will be affected if key markets such as the U.S. and Europe don’t recover quickly from the recession. Chinese makers of solar photovoltaics, including Suntech, export about 98% of their production. They have been battered this year by a collapse in demand in Germany, Spain, and Japan, China’s top markets for solar gear. Suntech’s factories are currently running at half of last year’s capacity.
Even inside China, academics and business executives say Beijing needs to do more to bolster cleantech initiatives and make them recession-proof. For example, without better information on how such policies as the current Renewable Energy Law are to be enforced, “many of the terms are meaningless,” complains Himin’s Huang. And even when the terms are clear, companies don’t always adhere, says Zhou Weidong, the Guangzhou-based China director at the Business for Social Responsibility, a global consultancy promoting sustainable business practices: “Paying penalties is cheaper than complying with the law in many areas.”
At times, it seems as though Beijing is pedaling in the wrong direction. Late last year, China’s Environmental Protection Ministry loosened review standards on potentially polluting industrial projects. In an economic crunch, “environmental protection is downplayed to second, or third, or even fourth priority,” observes Guo Peiyuan of SynTao, a corporate social responsibility advisory firm in Beijing.
While acknowledging there has been some backsliding, most China watchers say the government is unlikely to stage a full-throttle retreat. Too much of its export growth is contingent on meeting strict environmental regulations. And Beijing recognizes that Chinese society can’t tolerate much more environmental degradation. The World Bank estimates damage from pollution—everything from decimated fisheries to premature human death—saps nearly 6% of China’s gross domestic product each year as well. For economic reasons alone, it will be difficult for China to turn back the clock.
Landlords, who would shoulder the financial burden, may hold up cities’ ambitions to make commercial buildings more energy efficient
On Earth Day last month, Mayor Michael Bloomberg announced the latest step in New York’s ambitious campaign to green the Big Apple. The proposal, likely to become law, calls for 22,000 of the city’s biggest buildings—from iconic office towers to humble apartment blocks—to undergo detailed energy audits. Guided by the findings, building owners will then be obliged to invest in upgrades such as insulated windows or more efficient boilers.
To soften the burden on landlords, they’d only be forced to bankroll changes that would pay for themselves over five years through reductions in energy use. The mayor says the plan will deliver $750 million in annual savings on utility bills, add thousands of new green jobs, and cut the city’s greenhouse gas output by 5%.
One tricky problem: The financial benefits of these retrofits flow mainly to tenants in the form of lower electric, water, and gas bills, not to the building owners who are expected to cover the costs. This leaves the owners facing a regulatory stick but no carrot. Without a better reward on the table, the landlords will drag their feet, predicts Jennifer Henry, real estate sector manager at the Natural Resources Defense Council, a nonprofit green advocacy group.
The obstacle is slowing eco-upgrades beyond New York, just when the nation needs them most. A McKinsey & Co. study suggests energy efficiency upgrades in buildings and appliances are the most cost-effective green strategy for the U.S., where buildings consume about 35% of all the energy used each year. That’s why President Barack Obama has made retrofits a priority, setting aside $2.8 billion in the federal stimulus package to promote them. “You have to fix existing structures,” says Marc Heisterkamp, director of commercial real estate at the U.S. Green Building Council, a standard-setting trade group.
CHILLY RECEPTION
In New York, Bloomberg is trying to jump-start the process, but he got a chilly reception from big property owners, the group he expects to pay for the upgrades. It’s not for lack of interest in energy savings. Rather, the current situation and the mayor’s proposal offer too few financial rewards.
The snag with paying for retrofits mainly affects major upgrades in large leased properties, especially multitenant buildings, which make up the bulk of the 5 million commercial properties in the U.S. In these buildings, widely varying rental terms—depending on the amount of leased space, market conditions, and lease duration—can make the financing of ambitious retrofits “seem almost byzantine,” says NRDC’s Henry.Consider a routine upgrade to common-area lighting systems. Occupancy sensors that turn out lights when no one is around can pay for themselves in a few years. But landlords generally pass on operating expenses such as electricity, including for shared areas. So their costs wouldn’t fall because of the upgrade, and they have little pecuniary incentive to pay for improvements. “If a building’s systems are inefficient but still fully functional, the owner won’t bother [with a green upgrade],” says Sean Patrick Neill, principal of Cycle-7, a New York consultancy that focuses on green-building financing.
BALKING BY BANKS
Such barriers lead to a second problem: Without a clear way to make money from energy savings, “banks have found it difficult to finance big retrofits,” says Mike Pedersen, group head of corporate operations at TD Bank Financial Group. Up front, there’s the catch-22 that banks want to see “track records of proven savings resulting from the retrofits,” he adds. That’s tough to provide if the projects can’t get financing. Banks are also uncomfortable with fuzzy arrangements, such as lending to an owner backed by hypothetical savings drawn from multiple tenants.
A determined landlord can find novel financing models. New York’s Empire State Building is trying to cut energy use by 38% as part of a $500 million planned rehab. Carrying little debt, its owners can use the building, rather than energy savings, to back the loan. In Chicago, Vornado Realty Trusts’ Merchandise Mart, the world’s largest commercial building, has paid for eco-improvements from its own ongoing operating budgets, eking out incremental savings by updating mechanical systems, windows, and maintenance routines.
And in Toronto, TD Bank (TD) works with owners, tenants, and other banks to identify and finance retrofits. With the right market-based solution, “tenants will see energy cost savings, and owners can monetize a share of those savings to finance investment,” says David Pecaut, a senior partner at Boston Consulting Group and co-chair of the Greening Greater Toronto initiative. “Then green retrofits will take off.”
The financial specialists that convert tax credits into capital to build new windmills and solar farms have all but disappeared
After years of fighting for stronger, more consistent state and federal support, the renewable-energy industry couldn’t have asked for a better 2008. Although supplying just a sliver—barely 3%—of the nation’s electricity, nonpolluting renewables such as wind, solar, and geothermal are the fastest-growing type of power being added to the grid. New installations of solar and wind power both hit record levels last year in the U.S.
In a year when the overall outlook for green businesses was mixed, renewables proved to be standout, says Joel Makower, executive editor of GreenBiz.com. Growth of renewable energy seems slow “because [of] the relative small size of the renewable energy sector, compared with the existing power generation industry,” Makower points out in GreenBiz.com’s just-released State of Green Business 2009 report. “But a closer look at the sub-sectors reveals impressive strides.”
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This year was shaping up to be even better. As part of the Emergency Economic Stabilization Act, signed into law last October, Washington granted unprecedented extensions of tax credits vital to the financing of solar and wind power projects. Then, in the first days of his Presidency, Barack Obama declared a goal to triple the share of the nation’s electricity from renewables, to roughly 10%, by 2012. What’s more, after years of production constraints keeping prices high, investments in new manufacturing capacity in both solar and wind have begun to produce more gear, lowering equipment prices.
THE MONEY DRIES UPJust when things were looking up for the green energy sector, there’s a new wrench in the works. The financial specialists that convert tax credits into capital that developers use to build new windmills and solar farms have all but disappeared—just when they’re most needed. “For all the good news, the lack of project finance and capital means there’s a real risk it won’t be possible to hit Obama’s goals,” says Christopher O’Brien, head of North American market development for Oerlikon, a Swiss supplier of solar technology.
Here’s the problem: To fund a renewable project, developers must convert tax credits into money they can use to pay for new photovoltaics and wind turbines. In recent years, a network of financiers has emerged to serve this market. Typically, small and midsize renewable project developers sell millions of dollars worth of tax credits to large, sophisticated financial entities that can use those tax credits to offset their own tax obligations or those of their clients.
As result of the capital crash, however, the pool of so-called “tax equity investors” has dwindled to around a half-dozen, from more than 20 in 2007. Key players such as Merrill Lynch and Lehman Brothers no longer exist. Others, including the likes of John Deere (DE) and Prudential (PRU), have backed out of the market, if only temporarily, according to research by Hudson Clean Energy, a private equity firm specializing in green energy. “This will be a constraining factor because the population of sophisticated buyers for these credits is too small,” says Oerlikon’s O’Brien.
While obscure, tax credits are a make-or-break ingredient for new renewable projects. They can comprise the bulk of the upfront funding used to build renewable energy projects. In a big wind development, for example, production tax credits can account for more than half of the capital structure. In a solar venture, tax equity accounts for 85% of the capital structure, according to Hudson Clean Energy data. Developer equity and debt typically make up the balance.
BUYERS NEEDEDTax credits are also important in the long term. Once renewable assets start generating income—from a combination of electricity sales, depreciation benefits, and tax benefits—the tax component can be the largest source of return for investors. For wind projects, the value of tax credits makes up about 21% of the long-term value of the project for investors. In solar farms, the value of the investment tax credit—at 30%—can be on par with the value of the electricity the panels will generate in their lifetime. Sophisticated investors like the tax credits because they typically trade at a slight discount to face value, and offer a cheaper way to pay down big tax bills.
The shortage of buyers couldn’t have come at a worse time. To hit Obama’s goals for new renewable energy, the industry will have to mobilize far more capital than it has had to before. This year, the tax equity market is expected to hit $11.1 billion and would have to rise to around $43 billion in 2012 to build all the capacity being called for. Yet in 2007, when the market had more than 20 buyers, investors bought up $5.4 billion in tax equity. Last year, just eight investors handled about $5.5 billion in 2008. “Between now and 2012, [tax equity] markets would have to grow four- or fivefold,” says Arno Harris, CEO of Recurrent Energy, a renewables developer in San Francisco.
The industry has a solution, but it’s not clear if the Senate and House will find common ground to make it work. Renewables players are lobbying for a change in rules that would temporarily convert tax credits directly into cash payments from the federal government. The bill would also temporarily extend the credits’ lifespan. Today, credits are good only for the year they’re granted. The new bill calls for them potentially to be used against past and future profits.
With the Senate now negotiating its version of the stimulus bill behind closed doors, it’s impossible to predict how renewables will be treated. The starting version of the Senate bill lacked any funding to cash out renewable tax credits. According to Environment & Energy Daily, Senator Jeff Bingaman (D-N.M.) was open to the program but wanted assurance that taxpayers would be reimbursed from the gains of any successful projects. If Washington can’t come up with a fix, the go-go growth of renewable energy could black out.
Aston is Energy & Environment editor for BusinessWeek in New York.
Builders find the savings from cheap power is making solar homes more attractive
As global financial markets melted down in October, Congress handed a gift to America’s green energy industry: It renewed and broadened a set of tax credits for wind and solar power, geothermal, tidal energy, and more. The move did little to prop up eco-energy stocks, which have followed oil prices down. But the news did send a positive jolt to one of the economy’s darkest sectors: homebuilding. Or, more specifically, solar-powered homes. Consumers recognize that green homes “save money month in, month out,” says Rick Andreen, president of Shea Homes Active Lifestyles Communities in Scottsdale, Ariz.
Most of the sweeteners Congress conjured up will go to big projects such as wind farms. But aspiring buyers of green homes will benefit, too. The revised 30% one-time investment credit for solar means that a buyer who installs a typical $25,000 solar panel system on his roof will get $7,500 in income tax credits, up from $2,000 under the old standard. How long that investment takes to pay off will depend on local rules and utility rates. In markets with the most costly power, such as California, Connecticut, and New Jersey, the pretax compound rate of return on a typical home solar system will be better than 15% per year, says Andy Black, chief executive of OnGrid Solar, an industry research firm.
The fresh credits may mark a turning point for solar-powered homes. During the housing boom, when mortgages and energy were both cheap, green power was not a hot option; typical home buyers preferred granite countertops to solar panels. But even before the subprime crash, builders began to see rising interest in sun-powered dwellings. Ryness Co., which compiles sales data for homebuilders, found in a recent survey that homes with solar systems were outselling others by as much as 2:1 in 13 California communities.
Today there are about 40,000 solar homes in the U.S., but that number is set to spike. Shea is adding solar to communities planned for Arizona, California, Florida, and Washington State. And, responding to a shift in buyers’ attitudes, big builders such as Centex (CTX), Lennar (LEN), Pulte Homes (PHM), and Woodside Homes are following suit. Consider Whitney Ranch, a development south of Sacramento. Sales there softened in the housing downturn, says Kathryn Boyce, an executive at Hanley Wood Market Intelligence. But when Standard Pacific Homes (SPF) put solar systems on a group of new models in the development, they sold out. The builder then decided to install panels on all 304 of the homes.
The appeal of solar homes could grow as the economic outlook worsens. The more utility bills cut into household reserves, “the more consumers recognize the value of efficiency,” says Robert W. Hammon, principal of ConSol, a green building consulting firm. And there’s growing consumer awareness that solar homes appreciate faster than ordinary dwellings. They also resell for a premium of up to 5%.
According to Ben Hoen, a researcher at Lawrence Berkeley National Laboratory who studies the effects of eco-features on real estate values, more homeowners now see solar panels as a long-term asset. Mortgage lenders, however, have been slow to make that link. The loan processes at Fannie Mae (FNM) and Freddie Mac (FRE) don’t give special treatment to buyers who make improvements to lower utility bills, says Shea’s Andreen. Builders wish lenders would start to take stock of eco-features. “Solar panels free up household cash flow,” Andreen says. “Lenders should recognize that.”
Aston is Energy & Environment editor for BusinessWeek in New York.
Enlisting Father Profit to Save Mother Nature — Tom Friedman makes a gripping political, environmental, and economic case for green innovation
Hot, Flat, and Crowded: Why We Need a Green Revolution— and How It Can Renew America. By Thomas L. Friedman. Farrar, Straus & Giroux; 438 pp; $27.95
When the U.S. Marines, General Electric (GE), and even China—an energy-poor, environmentally challenged industrial giant—are betting on green innovation to gain a competitive edge, you’d think U.S. policymakers would pay attention. Not yet, though, says Thomas L. Friedman in Hot, Flat, and Crowded: Why We Need a Green Revolution—And How It Can Renew America. It is urgent, he says in this cri de coeur, that we unleash U.S. creativity—and capitalism—on the challenges of energy and climate change. “There is only one thing bigger than Mother Nature and that is Father Profit, and we have not even begun to enlist him in this struggle,” he writes.
Expanding his horizons beyond globalization, the subject of The World Is Flat (2005), the three-time Pulitzer Prize winner argues that a trio of powerful dynamics is shaping our future. The “hot” of the title refers to global warming, or “global weirding,” as he calls it, referring to the bizarre climate effects we are encountering. “Flat” refers to globalization, enhanced here with a look at how trade growth fuels energy use and hurts the environment. “Crowded” refers to humanity’s relentless expansion and its perilous effects on biodiversity and the planet’s finite resources. The only solution to these ills, he forcefully asserts: innovation in the form of a green revolution.
Of course, these topics have been addressed by others: If Fareed Zakaria and Al Gore met and co-authored a long-winded book, this would be it. Many sections were first explored in Friedman’s New York Times column, and with over 400 anecdote-chocked pages, Friedman asks a lot of the reader.
Stay with him, though. Surprising material is scattered throughout, and the final sections may be the book’s most rewarding. Its very sprawl emphasizes the scale of these problems and allows the author to make a strong case for the possibility and necessity of addressing them. With a tone of urgent hopefulness—or “sober optimism,” as he says—he beseeches voters, executives, and politicians to get on with it.
SUCCESS STORIES
Friedman hops across the globe to document the intimate interplay of the three trends. In the jungles of Sumatra, he visits a conservation activist who worked with an energy developer and with villagers to create an economy that fosters rather than destroys the rainforest. Then Friedman is on to Iraq, where a U.S. general on the front lines installs solar panels to reduce the need to transport diesel to fuel electric generators. Cut to Connecticut, where CEO Jeffrey R. Immelt (a recurring character) talks up how tougher environmental standards have made GE’s high-efficiency locomotives best-sellers and a leading export to China.
Innovation, whether the result of policy or entrepreneurialism, is the key to these success stories. Unfortunately, America remains caught up in what Friedman calls a “dumb as we wanna be” mindset, where “drill, baby, drill” is an easier sell than long-term, comprehensive energy policy.
This has security implications. There’s a simple, negative correlation, says the author, between oil and democracy: As oil prices rise, petrodictators grow rich and democracies weaken. Conversely, as oil prices fall, petro-dictators grow weaker and democracies flourish. Think of the reforms of Russia and Iran in the 1990s, when oil prices were low, compared with the countries’ troublemaking in the era of $100-per-barrel oil.
What’s more, he notes, petro-states tend to undereducate their youth, fueling unemployment and creating a breeding ground for terrorism. How to reverse this pattern? Radically cut energy demand and invent fantastic substitutes.
Which brings us to China’s green ambitions—and the U.S.’s failure. If you read only part of this book, let it be the final chapters, in which Friedman explores how China could emerge as a green prodigy. Sure, Chinese leaders unleashed two decades of environmental turmoil by replacing communism with “GDPism.” But increasingly, Friedman says, those leaders are recognizing that environmental harm threatens not only the land, water, and air but also their political future.
So they’re acting. China’s voluntary goal of decreasing carbon emissions, for example, would result in five times more greenhouse-gas savings than the targets set by Europe under the Kyoto Protocol. China also has higher national targets for renewable energy than the U.S. (where there are none) and tougher mileage rules for its burgeoning fleet of vehicles.
If China’s leaders see the necessity of this approach, Friedman wonders, why can’t ours? Despite the scale of the challenge, he is optimistic that the political, technical, and economic means are at hand to spark a U.S. economic revolution. From windmills to advanced batteries, the results could mean new exports and jobs.
When Friedman completed this book in July, he may have been encouraged by the green leanings of the men who eventually became Presidential contenders. If so, he has good reason to worry now. John McCain, the author of some of the Senate’s most progressive climate proposals, is now promoting offshore drilling as a fix. And Barack Obama, having argued the potential of green innovation to jump-start economic growth, has become less vocal.
Yet, Friedman is certain the public can tackle the challenge. He criticizes articles that offer “205 easy ways to save the earth.” Such pandering implies that the revolution will be painless. It will not be: It will demand ugly political battles, the fall of dirty industries, and the rise of new, clean ones. “I am convinced,” he writes, “that the public is ready; they’re ahead of the politicians.” For now, though, the petro-dictators are surely the only ones smiling.
Cape Wind’s Gordon may soon get the O.K. to build turbines Stephan Savoia/AP photo
It’s no longer if, but when, where, and how many wind farms will go up along the U.S. coast
Wind farms are springing up in Midwestern fields, along Appalachian ridgelines, and even in Texas backyards. They’re everywhere, it seems, except in the windy coastal waters that lap at some of America’s largest, most power-hungry cities. That’s partly because the first large-scale effort to harness sea breezes in the U.S. hit resistance from an army led by the rich and famous, waging a not-on-my-beach campaign. For almost eight years the critics have stalled the project, called Cape Wind, which aims to place 130 turbines in Nantucket Sound about five miles south of Cape Cod. Yet surprisingly, Cape Wind has largely defeated the big guns. In a few months it may get authorization to begin construction. Meanwhile, a string of other offshore wind projects is starting up on the Eastern Seaboard, in the Gulf of Mexico, and in the Great Lakes.
Much of the credit—or blame—for this activity goes to Jim Gordon, the man who launched Cape Wind in 2000. His goal is to provide up to 75% of the electric power on Cape Cod, Nantucket, and Martha’s Vineyard by tapping the region’s primary renewable resource: strong and steady offshore breezes. He has methodically responded to every objection from Cape Cod property owners and sometime-vacationers, ranging from heiress Bunny Mellon and billionaire Bill Koch to former Massachusetts Governor Mitt Romney and Senator Edward M. Kennedy (D-Mass.). “This is like trying to put a wind farm in Yellowstone National Park, as far as we’re concerned,” says Glenn Wattley, CEO of the Alliance to Protect Nantucket Sound, the opposition’s lobbying arm.
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Since 2000, Cape Wind’s Gordon has burned through $30million of his own wealth, much of it to pay for studies of the site. The result is a four-foot-high stack of environmental reports, including three federal applications looking at the wind farm’s potential impact on birds, sea mammals, local fishermen, tourism, and more. “We’ve gone through a more rigorous evaluation process than any prior energy project in New England,” says Gordon, who built natural-gas-fired power plants before starting Cape Wind.
Victory is by no means certain. Cape Wind could yet bog down in litigation or be nixed by the feds, Gordon concedes. Even if Washington O.K.’s the project, he must find a way to finance it. Expected costs have more than doubled in the last eight years, to over $1.5billion, by some estimates. And assuming the funding comes through, engineering and construction could drag on for three or more years.
Regardless of how this all plays out, Gordon has secured his spot as one of U.S. wind power’s pioneers. When it comes to building natural gas and oil rigs in federal waters, energy companies must follow clear government rules. But until Cape Wind floated its first proposal, Washington had never spelled out how to develop an offshore wind farm. Gordon’s plan prodded the Minerals Management Service, the federal agency that oversees energy extraction from public lands, to take action. The regulators hope to release detailed rules for utilizing wind, wave, and tidal power by yearend, at which point the path will be cleared for applications from a dozen or so wind projects in federal waters, with nearly as many under way in state areas. “We’ll see an incredible flurry of proposals to tap ocean resources for clean and renewable energy,” says Maureen A. Bornholdt, program manager at the MMS’s Office of Alternative Energy Programs.
It’s easy to understand why entrepreneurs are rushing in. Winds at sea blow stronger and more steadily than on land, where they are slowed by forests, hills, and tall buildings. Unlike terrestrial winds, sea breezes also tend to keep blowing during the hottest times of the day, when the most power is needed. Within a few miles of much of the U.S. coastline, in almost any direction, wind resources are more abundant and dependable than anywhere outside the Great Plains. Exploiting this resource could supply about 5% of all U.S. electricity by 2030, says the National Renewable Energy Laboratory.
Putting turbines in open water is not a cheap proposition. It costs up to twice as much as in rural expanses. But the economics still work well in the Northeast, where open land is scarce, electricity is pricey, and demand for power keeps surging as populations swell. The Northeast is heavily dependent on electricity from natural gas, which has doubled in price in the past year. What’s more, most state governments in this region have passed laws dictating that a growing share of power must come from renewable resources. These states “have to build offshore,” says Bruce Bailey, president and CEO of AWS Truewind, which assesses wind resources. “They won’t be able to meet their [renewables goals] if not.”
In Hull, Mass., a faded Victorian-era beach town just across the bay from Boston, there’s already a windmill spinning above the local high school and another over the dump. Four more turbines are planned for the waters just a mile and a half from one of Greater Boston’s busiest public beaches. Thanks to the two functioning windmills, power rates in the town haven’t risen in seven years, although they’ve doubled statewide. With four more, Hull could meet all of its needs with homegrown energy, says town manager Phil Lemnios.
Throughout New England, shrunken shipbuilding and fishing towns have begun to view offshore wind power as a source of investment and jobs. In Rhode Island, a consortium of fishermen is vying with Bluewater Wind, a unit of wind-farm developers Babcock & Brown (BNB), to put turbines in state waters near Block Island. Across the region, planners hope to reanimate shipyards by building not just turbines and foundations but also the specialized ships needed to transport and erect supersized towers and blades. In Delaware, Bluewater Wind has a project in development that could produce as much as 600 megawatts 12 miles from Rehoboth Beach; it scored an industry first in late June, when it inked a long-term contract to supply electricity to Delmarva Power. Bluewater’s project may well become the first functioning offshore wind farm in North America.
The shores of the Great Lakes, with their strong winds and shallow waters, are also luring developers. Cleveland is among a handful of cities planning wind farms. With offshore wind as a driver, the Rust Belt city wants to remake its waning industrial base into a launchpad for green energy projects.
Down in the Gulf of Mexico, a consortium of oil-and-gas-industry veterans has leased tracts stretching from Galveston, Tex., to the Mississippi Delta to develop offshore wind. Their startup, Wind Energy Systems Technology, plans to adapt retired oil rigs to cut the cost of building offshore plants to a fraction of current prices, says CEO Herman J. Schellstede. The rigs also let them site the turbines farther out at sea. Today’s offshore windmills are built on gigantic steel tubes bored into the seabed. It’s a proven approach, but it demands a lot of costly steel and can’t go too deep. Moving farther offshore on rigs allows developers to tap stronger winds—and the turbines are out of sight.
Europe is some 15 years ahead of the U.S. in exploiting offshore wind. Hundreds of giant windmills already dot the North Sea, with more than 1,000 megawatts of generating capacity. This head start provides an edge to equipment suppliers such as Denmark’s Vestas Wind Systems and Germany’s Siemens, the only two companies building offshore turbines in large volumes today. By 2020, Europe hopes to generate a quarter of all its electricity offshore.
As wind farms are moved into deeper water, they can take advantage of the oil sector’s offshore drilling knowhow, says John Westwood, CEO of Douglas-Westwood, a London-based market analyst that focuses on offshore energy. The U.S. has decades of expertise in this area, he adds. Schellstede’s company, for example, is looking at a new design that adapts multilegged platforms from the oil business. These rigs could be stable enough to withstand a hurricane and would use less steel than the current generation of coastal wind farms.
Back in Cape Cod, the talk is all about deep water, too. In June, real estate agents, marina managers, and property owners met at a Chamber of Commerce breakfast to discuss the latest proposal. BlueH Technologies of the Netherlands has dreamed up a project roughly the size of Cape Wind but over 30 miles out to sea, in depths of 160 feet. BlueH is testing a design with novel two-bladed turbines that uses floating windmills chained to huge anchors. The company faces years of costly development. Still, the region’s die-hard opponents of Cape Wind have embraced the plan as a better solution for Cape Cod. In a decade or so, those foes may find themselves enjoying ample supplies of green power from not one, but four or more offshore farms.
Aston is Energy & Environment editor for BusinessWeek in New York .
With today’s focus on “green” buildings, it’s no wonder that so many of the new towers scraping the Chicago sky are heralded for their benign impact on the environment. But what about the thousands of other high-rises and humbler structures already here?
Improving the energy profile of older buildings is a much harder feat. Before virtuous materials and systems can be installed, the old stuff has to be ripped out and hauled off. Managers of existing buildings also have to keep operations humming so as not to disrupt rent-paying tenants.
“It can be like performing surgery while the patient is still awake,” says Mark Bettin. Bettin has never performed in an operating room. But as engineering vice-president at Merchandise Mart Properties, he has just finished a three-year, multimillion-dollar odyssey to cut the massive structure’s consumption of energy, water, and materials.
The effort required overhauling decades-old practices and technology, from replacing most of the Mart’s 4,000-plus windows and upgrading rusty motors deep in its sub-basements to taking better care of dust mops.
The reward: At 78 years of age, the Merchandise Mart is now the biggest green building in the world.
It’s hard to overstate the scale of this undertaking. Straddling two full blocks and reaching up 24 stories, the complex contains 4.2 million square feet—about 400,000 more rentable space than the Sears Tower—and enough to qualify for its own Zip Code (60654).
Behind its limestone exterior are 380 miles of electrical wiring and 40 miles of piping and ductwork. The Mart requires 400 employees just to keep the place functioning. With more than 700 tenants, the building’s daytime population numbers 15,000 to 20,000. Every year, 3 million visitors stop in for trade shows and conferences.
The new and improved Mart may inspire other building owners to retrofit their properties, in Chicago and elsewhere. Fast-multiplying local and national goals to lower greenhouse gas emissions and energy use are putting existing buildings under greater scrutiny. Commercial buildings consume about 40% of the nation’s energy and generate about the same share of the gases blamed for global warming.
Yet new structures, where almost all green construction is happening today, add less than 2% to the total building stock each year. Thus, the only way to hurry along savings is to update the nation’s 4.9 million older commercial structures.
The rush to go green isn’t only due to government mandates. If owners of pre-21st century structures want to draw tenants who’ll pay top dollar, their properties must be as inviting as new places. That means installing not only the latest technology, but also green features, such as healthier workspaces stocked with nontoxic furnishings, carpets, and cleaning agents, plus plenty of natural light and ready access to public transportation.
Still, upfront expenses — and inertia — often hold landlords back. “Big existing buildings are a great opportunity, but they’re harder to get to,” notes Sadhu A. Johnston, the City of Chicago’s chief environmental officer. “They rarely go through major retrofits, and they’re not coming in for permits, so there just aren’t as many openings for us to point out how to do things differently. They have to go out of their way to go green.”
To remake the Mart, Bettin turned to the U.S. Green Building Council in 2005. A nonprofit standards-setting body, the council provides the imprimatur for green real estate, thanks to its Leadership in Engineering & Environmental Design (LEED) designation for new structures and LEED-EB certificate for existing buildings.
Think of an application for approval as a multiyear beauty pageant — but instead of points for swimsuits and talent, building managers get points for operational excellence, ranging from how much water they save to how clean they keep the air…
Save The Planet: Disappear — Weisman presents a curiously refreshing vision of the apocalypse
THE WORLD WITHOUT US By Alan Weisman. Thomas Dunne Books/St. Martin’s Press — 324pp — $24.95
The extinction of humankind is a grim topic. Yet in The World Without Us, journalist Alan Weisman invokes this ancient specter as the jumping-off point for a refreshing, and oddly hopeful, look at the fate of the environment. His central question: What would earth be like if humanity just vanished? Weisman’s answer is as fascinating as it is surprising. It turns out, from towering bridges to sprawling cities–not to mention delicate books or masterly artworks–precious few of man’s creations would last long. The author richly documents the damage done by industrial civilization, providing further momentum for business to go green. But his explanation of just how all of our methodically built cities, factories, and temples would implode under the slow assault of rot, rain, plants, and critters is the most compelling aspect of the book. The winners in Weisman’s tour de décomposition are the very flora and fauna that today are under pitiless assault from humanity…
