(soft music)
- My name is Andrew Szeri.
I'm dean of the Graduate Division.
We're pleased along with
the Graduate Council
to present, Amory Lovins,
this year's speaker
in the Barbara Weinstock
Memorial Lecture Series.
In 1902, Harris Weinstock,
a well-known businessman
of Sacramento, California,
presented the University
of California with a fund
to support an annual public
lecture on the morals of trade,
on behalf of his wife Barbara.
Weinstock was fundamentally committed
to the economic and moral
progress of humankind.
He wrote many newspaper columns,
and gave numerous lectures on topics
ranging from Napoleon to socialism.
Inspired by Spencer and Newton's essays
on the the morals of trade,
which lamented the state of morals
in the mid 19th century business world
he argued that a man does not profit
if he gains the whole
world and loses his soul.
Harris Weinstock hoped
that this lectureship
would lead to a better life
for those who spend their
lives in commercial pursuits.
He said, "Let men and women the world over
"worship character rather than wealth.
"Let them do homage to the
high-minded and pure-minded
"rather than to the
merely rich and powerful,
"and the ideal age will be at hand
"when trade will carry
with it the badge of honor,
"and the successful men of
business will take the place
"hitherto confined to the patriot,
"and the faithful servant of mankind."
Past lecturers have included Ralph Nader,
Neil Kinnock, and Nobel
Laureate, Amartya Sen,
and they have delivered
the Barbara Weinstock Memorial Lectures
on the morals of trade.
Now it's my pleasure
to welcome to the podium, Karlene Roberts,
chair of the Weinstock
Lectureship Committee
who will introduce our speaker.
(applause)
- Amory Lovins is co-founder,
chair and chief scientist
of the Rocky Mountain Institute.
RMI and Dr. Lovins work
to foster efficient,
and restorative views of resources
to make the world secure,
just prosperous and life sustaining.
He is also active in
creating policy in energy,
resource environmental development,
and security around the world.
Dr. Lovins has written 29 books
and several hundred papers.
Among his most recent books
is Winning the Oil Endgame:
Innovation for Profit, Jobs and Security.
Dr. Lovins dropped out
of Harvard and Oxford,
and then went onto be
awarded doctorate degrees
from 10 United States and UK universities.
He has receive numerous awards including
Time Magazine's Hero of
the Planet Award in 2000.
In 2007 he received the Blue Planet Prize,
the Volvo Environmental Prize,
and the Popular Mechanics
Breakthrough Leadership Award.
It gives me a great deal of pleasure
to welcome Dr. Lovins to Berkeley.
(applause)
- Thank you, and thanks to
those who made today possible.
I was thinking about the morals of trade,
and how trade typically occurs
within the context of capitalism,
so it seemed a natural opportunity
to introduce a new way of doing business
as if nature, and people
were properly valued,
but without needing to
determine or signal their value.
Capitalism is conventionally defined
as the productive use of
and reinvestment in capital,
but what's capital?
Normally, we only talk about four kinds,
and industrial capitalism
only deals seriously with two,
namely, money and goods,
but there are two other
kinds that are more valuable
that it typically ignores
and often just liquidates,
namely people and nature.
Of course, without people
there's no economy,
and without nature there are no people,
so this is a material omission.
It turns out if you play with a full deck,
and you productively
use and reinvest in all four
kinds of capital not just two,
you make more money, have
more fun, and do more good.
Now when our co-author of
the book Natural Capitalism
in '99 chose that title,
Paul Hawken,
I think he had in mind
not just that this is a form of capitalism
that takes natural capital seriously,
not just physical and financial,
but, also, that capitalism
as we know it today,
and as we see daily
illustrated in the headlines is unnatural,
is a temporary aberration
not because it's capitalist,
but because it liquidates
and doesn't value
its most valuable forms of capital,
and, therefore, violates its own precepts.
It's internally inconsistent.
The value of the ecosystem services
we get for free from
nature becomes obvious
whenever something like
Katrina comes around
the ability to stabilize
climate is an important service,
the ability to recycle nutrients,
to metabolize wastes,
to neutralize toxins,
and we don't know how
to do any of that stuff,
although, we have a little
idea how to pollinate.
You will find, though,
if you try hand pollinating the planet
it quickly becomes tedious, though,
it's nice to have all these
little helpers when we do.
If we lack these services we
feel the lack very acutely,
and perhaps at our peril.
In fact, as ecosystems
everywhere come under stress
the limits to the human
prospect are increasingly set
not by how many fish there are, excuse me,
not by how many boats and nets we have,
but by how many fish are in the sea.
Not by chainsaws, but by forests.
Not by irrigation pumps,
but by fertile land.
Now this sort of scarcity
imposing constraint is not new.
In fact, it was the basis of
the first Industrial Revolution
when to oversimplify a bit
there weren't enough
weavers to make enough cloth
for most people to afford,
but if you had come into
parliament around 1750,
and said, oh, don't worry,
I have a solution to that
we'll just make weavers
100 times more productive
nobody would have understood the concept,
let alone thought it was possible,
but it did happen when
profit maximizing capitalists
supported technological
innovators and vice versa,
and soon a Lancashire spinner
could produce the cloth
that had previously
required about 200 weavers,
not just in textiles,
but spreading throughout the economy
we had this proliferation
of affordable mass goods,
purchasing power, middle class,
all the artifacts that we see around us,
and identify as the hallmarks
of an advanced industrial civilization.
Now the logic of that
Industrial Revolution
was very clear and correct that at a time
when a relative scarcity of
people was limiting progress
in exploiting seemingly boundless nature
the obvious solution was to make people
100 times more productive and we did.
Economics is good at this
it teaches to economize
on our scarcest resource,
but as Herman Daly points out,
although the logic
remains perennially true
the pattern of scarcity
has quietly reversed.
In the next Industrial Revolution
now getting well underway
we have abundant people and scarce nature,
not the other way around,
so now it's no longer people,
but nature that we need to be using
four, 10, 100 times more productivity
bringing far more work out of the energy,
water, minerals, topsoil,
everything we borrow from the planet.
So that radical increase
in resource productivity
is the first of four
interlinked principles
of operating as a natural capitalist,
but there are three others
also very important.
One is to make things the way nature does
to produce in closed loops with
no waste, with no toxicity.
Then there's a principle about
adopting a business model
that rewards the first
two shifts by rewarding
both the customer and the
provider for the same thing
as I'll describe later.
Then what do you do with
the resulting profits
from getting rid of all this waste?
Well, how about
reinvesting it productively
into the kind of capital we're
shortest of namely nature.
I want to dwell on each of these,
but emphasize mainly the first one
is the easiest to get started with.
Since many of the world's
tensions and problems
come from actual or perceived scarcity
it would be a really good idea
to create abundance by design.
Now just a word, though, about
how this relates to trade.
There has been a longstanding argument
as globalization has
initially gained force
that increased trade lifts all boats,
and this might be true if
we only were talking about
financial and physical capital,
but, actually,
since true wealth comes
from productively using,
and reinvesting in four kinds of capital,
not just two we have to pay
attention to all four of them,
and it turns out that people and nature
have very different trade attributes
then the relatively portable and fungible
capital of goods and money.
Therefore, the ideology
of trade is incomplete.
Trade in money and goods
can increase wealth,
although, whether it does so equitably
depends on the policy framework.
Trade, however, does
not necessarily enhance,
and may degrade human and natural capital
because people are rooted
in a place, in a culture.
Nature is rooted in a place in a biome,
and if you try to move them around
you may degrade them or even destroy them.
So I think what are commonly regarded as
the labor and environmental issues
in the globalization controversy
simply reflect the absence
of two of the four forms of capital
from the ideology of trade.
If we're going to be good capitalists,
and try to create wealth
by productively using,
and reinvesting in capital
we're going to have to pay attention
to all four kinds of capital,
and to differentiate their
divergent trade attributes.
It's a very simple idea,
but one that one doesn't
often hear expressed.
Now let me dig a bit into
initially the first principle
of natural capitalism radical
resource productivity.
Since I usually talk about energy
let's go to materials instead.
It turns out that the flow of stuff
that we extract from the planet,
and process, move around,
use and throw away
is about 20 times your body weight
per person per day in this country,
and not very different in
other industrial countries.
That only counts the flow
of water returned dirty,
not water returned clean.
It's a huge mass flow very
destructive to the planet,
and one way of thinking about
it is if you scale it globally
it's getting on for a
half trillion tons a year
of stuff moving around,
and yet only one percent of it
actually ends up in durable products,
and is still there six months later,
so what's the other 99 percent?
It's waste, also known as a
vast business opportunity,
more on that later.
Energy is similar we've saved
well over $400 billion a year
by reducing energy intensity
in the past 30 years or so,
but we're still wasting nearly
that much just, for example,
the efficiency of converting
fuel at a power plant
into incandescent light in the
room is about three percent.
The power plant waste
heat that we throw away
is more energy than Japan
uses for everything,
or about 2/3 of what
China uses for everything.
China actually has purchasing power parity
on the order of nine times
the energy intensity of Japan,
which is not even a
tenth as energy-efficient
as the laws of physics permit,
but in practice Japanese
government recently found ways
to triple Japanese energy
efficiency at a profit,
and that's without counting
most of the efficiency tricks
that I'll sketch for you in a minute.
We have very well-known ways
to make old buildings several
fold more energy efficient,
new buildings in order of
magnitude more efficient,
but typically at lower cost.
We give you a few little examples.
I'll do this in written metric units,
and spoken Burmese units in
case anybody needs those.
You know, we're moving
toward the metric system
inch by inch in this country.
So let's go to my house and
indoor farm and research center
near Aspen in the Colorado Rockies
where it can go to -47F on occasion,
at 7,100 feet elevation.
You can get frost any day of the year.
You can get 39 days of
continuous midwinter cloud,
and yet if you come in
out of the snowstorm
to the central atrium there
you are in the banana jungle
where I've so far harvested
28 crops with no furnace.
Why don't I have a furnace?
Well, I didn't need one,
and it was cheaper upfront
not to put one in, huh?
Well, if you ask most engineers,
or look at any engineering textbook
you'll find that the
right amount of insulation
to use in your house
is supposedly the amount
that will pay for itself
over the years from
the saved heating bill,
which sounds perfectly reasonable.
You don't want to pay more
than it's worth do you?
But this is methodologically
wrong because it leaves out,
among other things the capital
cost of the heating system,
and it turned out it was
1,100 bucks cheaper upfront
not to have a heating system,
but to put in so much insulation
and such good windows,
and ventilation and
heating recovery and so on
that I wouldn't need a heating system.
I then took the saved
$1,100 in 1983 or so,
and invested that plus
another $7,100 so $6,000 net,
$1.50 a square foot,
to save, also, 99 percent
of the water heating energy,
half the water, 90 percent
of the household electricity,
which would cost five bucks a month
if I didn't make it with solar,
and all of those savings together
paid for themselves in 10
months with 1983 technology.
Today we can do a lot better and cheaper.
Let's try Davis, California,
where it goes to 113,
and later we did the
same at 115 Fahrenheit
in Stanford Ranch.
Here's an ordinary looking tract house
with the obligatory stupid dark roof,
and the big garage in front
that says cars live here.
As part of PG&E's ACT2 experiment
that Art Rosenfeld, and
I, and Ralph Cavanagh,
and Carl Weinberg cooked
up this was one of about,
oh, nine or so experimental projects done
showing that if this house
were built in quantity
not as a one-off experiment
it would cost about $1,800
less than normal to build,
$1,600 less present value to maintain
because it has no heating
or cooling equipment,
and yet it is comfortable
with no air-conditioner at up to 115,
and it's designed to use
about a fifth of the energy
then allowed by the strictest
code in the country,
and a tenth of the normal U.S. amount,
or here's a house in steamy Bangkok
that provides superior comfort
with a tenth of normal
air-conditioning energy,
and has exactly normal construction cost.
Now I've used houses for my example both
because they're familiar,
and because they have a
big surface to volume ratio
which makes it difficult
to stay comfortable inside
while it's having such
a huge range outside,
a range spanning the extent
of the earth's climate
pretty much at least where anybody lives,
and yet these houses
all tell the same story
that if you optimize the house as a system
you can make very large
energy savings cheaper
than small or no savings.
This goes against an economic dogma
called diminishing returns
which says that in general
as you save more of a resource
the cost of the next unit of savings
goes up more and more steeply
until it gets too expensive
and you have to stop.
Well, some components like
insulation work that way.
Some others like motors don't
or pumps or rooftop chillers,
but what's really interesting
is when you put the
pieces together properly
something quite different happens.
A different part of the curve pops up.
As I add more insulation
to my house in the Rockies
at first I experienced diminishing returns
because that's how insulation works,
but if I add so much of
it that I no longer need
the furnace, pipes, pumps, ducts,
fans, wires, controls and
fuel supply arrangements
then the cost comes down
even more $1,100 cheaper
then if I set out to
save little or nothing,
and yet I'm saving 99 percent
of the heating energy,
and why should I get
there the long way around
when I can tunnel through the cost barrier
directly to this design
destination by asking
is there a sensible way
to design this house
with no mechanical systems?
Well, as usual there is,
so we just go straight for the prize.
By the way, if you want
to know how to do this
please visit RMI.org/Stanford
where you'll find my five
public lectures of March 2007
on how to do this sort of thing,
this tunneling through the cost barrier
in buildings, industry, and transport.
The same thinking applies in industry.
I'll do a motor example
because they use 3/5 of
the world's electricity,
and a pumping example
because that's the biggest use of motors.
In fact, half of motor
energy goes to pumps and fans
which have the same physics,
and we needed a pumping loop to move some
heat transfer oil around it in a circle,
and the system had been optimized to use
95 horsepower pumping power,
but a Dutch colleague with
some ideas we brought in
was able to cut it to seven horsepower
that is 92 percent less.
It worked better, it cost less to build
not because of changes
in the pumps, controls,
or process, or motors,
but because of two changes
in the design mentality
so we ended up using
fat short straight pipes
instead of skinny long crooked pipes.
This is not rocked science.
This is good Victorian
engineering rediscovered.
Then we found we'd messed
up we left seven or eight
benefits out that we should have counted,
and if we'd counted them
we would have saved more like 98 percent,
and it would have cost even less,
so sorry we left a
factor four on the table
we'll do better next time.
If you apply this sort
of integrative design
across all uses you end
up saving at least 3/4
of all the electricity in the country,
cheaper than just running
a coal or nuclear plant
even if building it costs nothing,
and we know that from just looking at
the measured cost and performance data
of about 1,000 technologies
for saving electricity.
An important principle,
which we also have not
found in the textbooks
is to start your savings downstream.
I can feed here 100 units
of coal into a power plant,
lose about 2/3 of the energy on the way,
lose more on the grid,
and there are all these compounding losses
going through the motor
and pumping system,
and only a tenth of my initial fuel
actually comes out as flow.
Turn it around backwards and
every unit of flow or friction
I can save downstream in
the pipe will save 10 units
of fuel, cost, pollution
and global weirding
back at the power plant,
and it will also make
my upstream equipment
smaller, simpler and cheaper,
so I'll save the most energy
and the most capital cost
by starting my savings
all the way downstream,
and it's often surprisingly simple.
Often in a building or a
factory we see a big pump
that's designed to send
something up a pipe.
Next to it is an identical
in place spare pump,
or a helper pump and
they're drawn like this,
and then they're built like this,
so all the time the flow has to go through
two right angle bends
and usually two valves.
Why don't we plumb it this way
so it goes through no bends,
less friction, and no
valves, or one valve?
Well, because we don't
normally do it that way,
but, you know, if you
tell the pipe fitters
to lay out the supply pipes
as if they were drains
there's another part of
their brain that knows
that if drains have bends they clog,
and then you end up with
this kind of plumbing.
Peter Rumsey did this one right
here at the Oakland Museum,
and he was able to save 3/4 of the energy
used to pump the condenser
water with these wye bends,
and big pipes and small pumps
instead of small pipes and
big pumps, add a sweep bend,
and imagine a pipe running
diagonally through the air
what awful workmanship, you know,
pipes are supposed to
be at neat right angles.
Well, if it looks pretty
it won't save money.
Actually, in this case he
also eliminated 15 pumps
that will never again waste
energy and maintenance.
Nega-pumps are a good kind.
Now we've been applying
these principles lately
in over $30 billion worth
of redesigns in 29 sectors.
We typically have found about
30 to 60 percent energy savings
fixing up old factories and so on
with two or three year typical paybacks.
In new ones we save more,
typically more like 40 to 90 percent,
and the capital cost
almost always goes down
tunneling through the cost
barrier in a replicable way.
Of course, these kinds of
results wouldn't be possible
if the systems had been designed properly
in the first place,
and I'm getting pretty
tired of redesigning stuff
that wasn't designed right
so we're hatching a plot
for the nonviolent overthrow
of bad engineering called
10XE: Factor Ten Engineering,
and we are on the prowl for
great cases and practitioners
to add to next summers
casebook writing project.
Just as a few examples
to give you the flavor
there are 35 things you
can do to motor systems
to save about half their energy
without counting the downstream
pump, pipe and so on,
stuff you should do first.
The reason you get your money back
at about a year from this retrofit
is you only pay for seven
of the improvements.
The other 28 are free byproducts.
We've gotten similarly fast
paybacks saving often upwards
of half the energy used
to make chilled water,
and clean air in chip-fabs.
We showed how to retrofit for
a 42 percent energy saving
in the most efficient refinery in Europe
with an excellent payback.
Similarly how to save half the electricity
used on a North Sea oil platform,
and get the other half from
stuff they're throwing away.
43 percent savings in the
world's biggest platinum mine
with a three year payback.
Then when it gets into new
stuff just for example,
the famous Texas Instruments Fab
was built in Richardson,
Texas not in China
because they're able
to cut out 30 percent,
or $230 million of capital cost together
while saving a good deal
of energy and water.
By the way, the two biggest
energy saving measures
were deferred for the next plant
that's why we only saved a fifth,
but our latest fab design saves about
2/3 of the electricity
and half the capital cost,
and eliminates all
22,000 tons of chillers.
about a billion dollar saving
on a big gas-to-liquids plant
saving over 60 percent
of the energy in carbon.
Depending on what you start
with a new supermarket
should save about 70 to 90
percent, probably gets cheaper.
You certainly get better
merchandising and food safety.
Besides normal stuff in a chemical plant
we had a fun example recently with NREL
showing how to take a corn
stove or ethanol plant
supposedly good new design,
and save half the steam and
60 percent of the electricity,
and 30 percent of the capital cost.
Normally in a new big office
building we expect to save
about 80 or 90 percent of the energy,
and a few percent of the capital cost.
One of my favorite cases is
a big 200,000 square foot
curtain wall office building near Chicago,
so it's both hot and cold,
and if you retrofit it at the time
when in any case you're
replacing the glazing
whose edge seals have
failed after 20 years
you can put in super windows
that are about perfect in
letting in light without heat,
deep day lighting, efficient lights,
efficient office equipment,
and save 3/4 of the peak cooling load.
Then you can take the mechanical system
the air-conditioners that you need
to replace anyway for agent CFCs,
and make them four times more efficient
while you're making
them four times smaller,
and save enough money on the downsizing
to pay for everything else,
so you end up saving 3/4 of the energy
at a slightly lower cost
than the regular 20 year
renovation that saves nothing
just by coordinating with
stuff you're gonna do anyway.
How does this all apply to saving oil?
Well, four years ago my team published
an independent study nobody's arguing with
co-sponsored mainly by the Pentagon called
Winning the Oil Endgame
written for business and military leaders,
and built around competitive
strategy business cases for five sectors.
You can get it all free at
our Oil Endgame website.
It's a roadmap for getting
the U.S. completely off oil
by the 2040s led by business for-profit,
and with a much stronger economy.
The transition could
look something like this.
The oil use and oil imports
instead of heading steeply
toward the northeast corner,
as usually projected,
could be turned down
along these green curves
by redoubling the efficiency of using oil.
We've already more than
doubled it since 1975.
We can double it again
and the average cost
of saving a barrel is
about $12 in your $2,000.
Then we could go down more
steeply along the blue curves
by replacing the other half of the oil
with a mixture of saved natural
gas and advanced biofuels
unrelated to the food system
at an average cost of 18 bucks a barrel,
so let's see the average
of 12 and 18 is 15,
so I don't really care
what the oil price does
this is all still going to
make sense and make money.
Actually, we know it works in principle
because we did it once before.
Notice what happened back here.
That was the last time
our country paid attention
to oil 1977 to '85.
In those eight years GDP grew 27 percent,
oil use went down 17 percent,
oil imports fell by half,
imports from the Persian
Gulf fell 87 percent,
and they would have been gone
in one more year if we'd continued.
Indeed, OPEC's exports
were slashed by half,
and it broke their
pricing power for a decade
because we customers,
especially, in America,
the Saudi Arabia of nega-barrels
we had more market power
than the supply cartel
because we could save oil faster
than they could
conveniently sell less oil.
Much the same seems to be happening
in the market at this moment.
Well, that was then, this
is now, you are here,
and after this practice run, of course,
we could rerun that old play
all over again a lot better,
but let's be more ambitious.
Suppose that we invest about $180 billion
half of it to retool the car,
truck, and plane industries,
which seem to need it.
Half of it to build a
modern biofuels industry
that will actually increase
agricultural and forest sustainability,
and suppose that this was so successful
that it crashed the oil price
back to 26 bucks a barrel,
which was the official forecast for 2025
when we did this study four years ago.
Well, against $26 oil that
$180 billion investment
would yield a gross return
of $155 billion a year,
a net return of $70 billion a
year, a very handsome return.
As a free byproduct we'd save a quarter
of the carbon emissions,
and we would create a million new jobs,
3/4 of them in rural
and small town America,
and we would get to save a million jobs
now palpably at risk,
mainly in the car industry,
where we need to decide
whether we're going to
continue importing efficient
cars to replace oil,
or make efficient cars,
and import neither the oil nor the cars
that somehow sounds smarter,
and because the spread
between the $15 average cost
of saving or displacing
a barrel by these means,
and whatever the price is is
such an enormous incentive
that can go to the solution providers
the business logic is very compelling,
although, we do propose some
innovative public policies
in the book that can support,
and not distort that business logic
it's really driven by business for profit,
and implementation,
therefore, does not require
new fuel taxes, subsidies,
mandates, new federal laws,
or anything else that either party
doesn't like or could mess up.
Technologically, the key
is, of course, transport.
Buildings and industry have
similarly big opportunities
for 30 percent of the oil that they use,
but 70 percent moves things around,
and it turns out there's a common recipe
for making cars, trucks and planes
three times more efficient
with improved safety,
and no compromise of
comfort or performance
by making them lighter, more slippery,
and moving through the
air and along the road,
and giving them advanced propulsion.
So it's equivalent, for
example, in cars to being able
to buy gasoline for 57 cents a gallon,
even cheaper for truck diesel and Jet A.
Often with improved
performance, for example,
this diesel hybrid sports car from Opel
can get 155 miles an hour
and 94 miles a gallon,
although, not at the same instant.
The surprise to many is that
the ultra lighting that
doubles the efficiency
of these carbon fiber concept cars
does not increase their production cost
because the lighter more
exotic materials are paid for
by simpler automaking,
and a smaller, two or threefold
smaller propulsion system.
To understand how this works
you just need to think
about the physics of a car,
which typically uses every day
about 100 times it's weight
in ancient plants very
inefficiently converted into oil.
Where does that energy go?
Well, once you put your
gasoline in the tank,
7/8 of its energy never
gets to the wheels.
It's lost first in the engine, idling,
drive line and accessories.
Of the 1/8 that reaches the wheels
half of that either
heats the tires and road,
or heats the air that
the car pushes aside,
and only the last six percent
actually accelerates the car,
and then heats the brakes when you stop,
but since only a 20th of the mass
you're accelerating is you,
19/20 is the heavy steel car,
only five percent of that six percent,
or 0.3 percent of the fuel energy
ends up moving the driver.
After 120 some years of
devoted engineering effort
this is not very gratifying.
However, the good news is
that 3/4 of the energy needed
to move the car is caused by its weight,
and every unit of energy
we can save at the wheels
saves an additional seven units.
We don't need to waste
getting it to the wheel,
so there's huge leverage
in making the car
radically lighter weight,
whether through aluminum
or ultra light steel,
or carbon fiber composites,
which is what we used eight years ago
with a couple of European
tier one firms to design
this uncompromised mid-sized
suburban assault vehicle
that will take five adults in comfort,
69 cubic feet of cargo.
It can carry a half-ton
up of 44 percent grade.
It has quite brisk acceleration,
zero to 60 in seven or eight seconds,
and it gets about 114
miles a gallon on hydrogen,
or 67 with a Prius like gasoline hybrid
whose extra sticker price in mid-volume
would be about 2-1/2 thousand dollars,
and that extra is because it's hybrid,
not because it's ultralight
that part is free.
The reason we know what it
would cost is we put out
almost a 500 line item bill of materials
to anonymous bid by the supply chain.
Now the reason that the costlier materials
don't increase production
cost shows up here.
There are only 14 parts in that SUV body,
and you notice they're suspended
from rings like an air frame
rather than built up from a tub,
which is our horse and buggy
legacy in the car business.
Each of these 14 parts can be lifted
with one hand and no hoist.
In fact, the biggest part on the side here
I can briefly lift with one finger.
Each of the parts is made
with one low pressure die set.
Now a steel SUV has 10 or 20
times more parts than this
each made with an average
of four progressive
steel stamping die sets,
a billion dollars worth,
a football field worth full of tooling,
and we just saved about 99
percent of that tooling cost.
Then these plastic parts snap together
like a kid's toy for bonding
without needing the
jigs, robots, and welders
of the body shop,
and if we lay color in the mold
there's no paint shop either.
Those are the two hardest
and costliest parts
of making the car,
so at least 2/5 of the
capital intensity went away
compared to the leanest
plant in the industry.
I brought along my carbon cap today.
This is a few year old test
piece for some military helmets
being shipped by a little company
I used to chair that we spun off.
You can tell from the sound,
and we can pass this around
as long as I get it back.
Don't worry about dropping it
it's tougher than titanium.
You can tell from the sound that plastics
have really changed since The Graduate.
If you make cars and
trucks out of this stuff
half the weight and half
the fuel use go away.
It gets safer because this can absorb
12 times as much crash
energy per pound as steel,
and yet the car costs the same to make
for the reason I described here,
and because the powertrain
is three times smaller,
so it's nice that we now have technology
that when matured and
scaled makes it possible
to make these advanced
composite structures
with aerospace performance,
but automotive cost and speed.
It's just like finding a
Saudi Arabia under Detroit,
so my wildcatters have been busy drilling
this really prospective play
in the Detroit formation.
Altogether we found over
14 million barrels a day
of nega-barrels in the U.S. economy
at 12 bucks a barrel,
so, gee, if you go to
the ends of the Earth
to drill for very expensive oil
that might not even be there,
and somebody else found all
that cheap oil under Detroit
wouldn't you be embarrassed
and maybe bankrupt?
So let's drill the most
prospective place first.
We were just drilling
in all the wrong places.
Lest you think this is fanciful
here's a concept car that Toyota showed
a year and two days ago called the 1/X.
Why do they call it that?
Well, because it has the
interior volume of the Prius,
but 1/2 the fuel use and 1/3 the weight.
In fact, if you take out the
20 kilos of extra batteries
that make it a plug-in hybrid
then it has exactly the
same curb weight 400 kilos
that I suggested in '91,
a good four-seat carbon car should have
to much polarity from the
industry as you can imagine.
This is so light that the
little half liter engine
tucks under the rear seat.
Now this concept car like most,
might be dismissed as a brag
that will never get to market
except that the previous day
by arrangement it turns out
the world's biggest maker
of carbon fiber, Toray,
had announced a $.3
billion plant in Nagoya
to mass-produce carbon
fiber car parts for Toyota.
Clearly, therefore, this
was not done for amusement.
This is a statement of strategic intent
as they have since confirmed,
and a few months ago Honda
and Nissan did a similar deal.
Meanwhile, other makers
like Ford and Nissan,
and the whole Chinese car
industry are embarked on
very substantial lightweighting
perhaps based on more familiar materials
that they're very good at,
so this highest leverage
thing we can do to cars,
lightweighting, is
actually off and running,
and the next big shoe to drop
the electrification of traction
is coming along very rapidly.
So here's how the automotive
revolution could unfold.
If you take a good hybrid like
a Prius and drive it properly
not the way Consumer Report says to
you'll get doubled efficiency
even without clean diesels
which are emerging.
If you then make it
ultralight and slippery
you redouble its efficiency.
If you then run it on sustainably
grown cellulosic-ethanol
from woody, weedy stuff like switchgrass
you can save 3/4 of the remaining oil.
Now your using a 16th of the oil
that you started with per mile,
and you can pay farmers for
taking carbon out of the air,
and putting it back in
topsoil where it belongs.
If you then do a good plug-in hybrid
such as Toyota is getting
out over the next year or two
you can redouble fuel efficiency,
so now you're down to three
percent of the oil per mile
that you started with.
By the way, your second
biggest household asset,
currently 96 percent idle
can now turn into a
profit center when parked
selling stored or generated
onboard electricity
back to the grid when and
where it's most valuable.
The first couple of
million people to do that
will probably earn back
the whole cost of the car,
and for the rest it will still be
a significant profit center.
The car fleet even at tripled efficiency
will then have six to 12
times as much capacity
as the whole power system has now,
so it doesn't take very many of us
liking these new value
propositions from the smart garage
with let the car, utility, and building
talk to each other intelligently
to put the coal and nuclear
plants out of business,
and I haven't even
talked yet about hydrogen
which actually does make
sense and make money
when the car gets this efficient.
Now you might wonder whether
these kinds of efficiency breakthroughs
can create a new competitive
strategy and the answer is yes
because Boeing just
showed us how to do this.
In 1997 Boeing was in
about as much trouble
as Detroit was a decade later.
They had rot away costs which
they brought under control
with Toyota Production System and so on,
a lot of wrenching change,
but there wasn't a whole lot
of innovation in the pipeline,
and Airbus was pulling ahead,
and some folks were starting
to doubt Boeing's staying power.
Well, Boeing's bold repost in 2004
is what was renamed
then the 787 Dreamliner
saving a fifth of the
fuel at no extra cost,
half carbon fiber by weight
up from nine percent,
many advantages for the
maker, for the builder,
and they're now closing in
on their thousandth order.
They're sold out well into 2018.
It's the faster order takeoff
of any jet in history,
and now they're rolling out that suite
of radical advances to
every plane they make
before Airbus can steer
itself out of the ditch.
So starting with advanced materials
manufacturing for ultra lighting,
and better aerodynamics and
engines, and design integration
they got this big jump in efficiency,
and then translated that
into breakthrough competitive advantage,
and flipped the sector in
about three to five years.
This is a complex product with
a couple of million parts,
and very highly regulated, not bad.
Well, with that in mind
my team has been busy
implementing the oil endgame
through what we call
institutional acupuncture,
that is we figure out where the
business logic is congested,
not flowing properly,
and we stick needles in
carefully selected sites
to get it flowing.
This is very effective,
and it's as much fun as you
can have with clothes on.
We really need to shift what's happening
in six main sectors,
and we don't need to
worry much about aviation
because Boeing already did it,
although, if you wanted
to help legacy airlines
get out of their cost hole
you could offer them
federal loan guarantees,
specifically, to buy
super efficient planes,
offset the loan guarantees
with equity warrants
so there's no net cost to treasury,
and then for every plane you so finance
you scrap one of the
inefficient old planes
parked in the desert,
so nobody will ever fly it again.
It's worth more dead than alive
let's take it out back and shoot it.
Boeing likes this idea.
Now in the case of heavy
trucks based on our analysis
Walmart has insisted on getting
doubled efficiency trucks
from its suppliers.
They've already saved
a quarter of the fuel,
and now they're headed for half
to turn over their fleet by 2015.
That will save them billions
of dollars net present value,
so they're highly motivated.
Basically, we're using the demand pull
of giant partners like Walmart
to drag these trucks into the market soon
so everybody can buy them.
The Pentagon, the world's
biggest buyer of oil,
and of renewable energy
emerged 13 February this year
as the leader within our government
in getting the nation off oil,
so they won't need to fight over oil.
They have a little
different, more specific,
and immediate reason for
being worried about oil,
and that is they have to
deliver it to the platform
in theater in wartime with
people shooting at them,
and trying to blow them up.
It turns out that half the
casualties in theater now
are associated with convoys.
70 percent of what they haul
is fuel mostly than wasted
because when requiring,
designing, and buying
the platforms that use the fuel
the Pentagon had always assumed that
fuel delivery is free, and invulnerable,
even though they have
whole divisions of people
moving fuel around and trying
to guard the movement of fuel.
Well, in April '07 we
finally persuaded them
to change the policy so that
saved fuel will be valued
one or two orders of magnitude typically,
more than it was before
because they'll count
the fully burdened cost
of fuel delivered,
and that which is now written into law
that requirement is going
to drive huge innovation
because when the prime
contractors start fighting over
who can make the most efficient tanks,
planes, ships and so on,
that innovation that they come up with
is going to spin back
to the civilian sector
much as military R&D already gave us,
little things you might have
heard of like the Internet,
and the chip industry and
the jet engine industry,
and the global positioning system,
so that will further speed
up the tripled efficiency
cars, trucks and planes,
and as you can imagine the
war fighters really like
the notion of neg emissions in the Gulf,
mission unnecessary.
There's a huge amount of
activity in advanced biofuels
including now algal oils,
and in finance the private capital sector
put $148 billion of new capital
into the clean energy
space last year worldwide.
We always knew the toughest sector
would be cars and light trucks,
but in '04 when Boeing was
suggesting its new strategy
we suggested in our book that
Detroit try the same thing.
It seemed like a good idea.
So it was gratifying two years later
to see Ford Motor Company
hiring the head of Boeing
commercial airplanes to run Ford.
He's now in Dearborn with
transformational intent.
The UAW and the dealers are
very keen for basic innovation
to save their industry as this tsunami
of creative destruction sweeps
over them opening minds,
further opened by new
competitors like India and China,
20 venture funded car
start-ups in the U.S.
we just spun off another one,
and over 100 entrants for
the Automotive X Prize.
Things are starting to move real fast,
and now there are new policy instruments
like the feebates we've been promoting
that will make more
profit for the automakers,
and greatly speed this kind of innovation,
so the competition is now at a pace
we haven't seen since the 1920s,
and it's going to change
the managers or their minds,
whichever comes first,
so our job is just to
accelerate that change,
maximize competition which is lots of fun.
Well, it's obvious from all of this
that protecting the climate is profitable
because it's cheaper to
save fuel than to buy fuel.
Efficiency is cheaper than fuel.
Somehow the economists who talk about
the cost of climate protection
overlooked this obvious point,
and talk about costs when
they got the sign wrong,
and should be talking about profits.
Here are some of the firms
that have figured this out
whether they worry about climate or not
they are leading profitable
climate protection.
Some of our biggest chip makers
are cutting carbon
emission six percent a year
with two or three year paybacks
just by making their
plants more efficient.
DuPont set a goal that by 2010
by six percent a year gain
in energy productivity,
and some renewables
they would have cut their
greenhouse gas emissions
to 60 percent less than they were in 1990.
Guess what, they were 80 percent down
even a couple of years ago.
30 percent more output, $3 billion richer.
Dow made even a bigger profit
substituting efficiency for fuel.
BP made two million bucks on that deal
meeting their carbon
goals eight years early.
GE is boosting its energy
efficiency 30 percent
to build shareholder value.
United Technologies just
started paying attention,
and cut energy intensity by
45 percent in five years,
and they're just getting started.
Maybe the record holder is Interface,
82 percent less greenhouse gas emission
over an 11 year period
while growing the business,
and making hundreds of millions of dollars
profit on the deal,
so politicians keep
debating theoretical costs,
but the smart companies are
racing to pocket the profits
before their competitors do,
and once more of our leaders understand
that this is a highly profitable activity
I think any remaining
resistance to doing it
will melt faster than the glaciers.
How fast do we need to do that?
Well, economic theorists
normally assume that
global energy intensity,
primary energy consumed
per dollar of real GDP
will keep falling,
just drifting down gradually
one percent a year,
but if we could make
that two percent a year
we could stabilize carbon emissions,
rather than tripling
them so we're all toast.
If we could make it three
or four percent a year
we could decrease those
emissions fast enough
to stabilize climate to the extent that
irreversible changes
aren't already underway.
Can we imagine
three or four percent a year
drop in energy intensity?
Well, the U.S. routinely does it
without even paying attention,
and we've done it for a long time
with stagnant light vehicle
efficiency for 26 years,
and rewarding utilities in
48 states, but not this one,
for selling you more energy,
and penalizing them for cutting your bill,
which is just as dumb as it sounds.
California has been saving
energy a percentage point faster
than the country as a whole,
thus saving each Californian
a couple of hundred bucks a year by now.
China about one percentage
point faster than that
other than a glitch in 2002 to '06,
which they now pretty well fixed.
Now it turns out that at
least half the oil and gas
in the country and 3/4 of the electricity
can be saved at an 8th of the
price we're paying for them.
That sounds like a pretty good deal
along with 2/3 of Japanese energy,
and they're several times
more efficient than we are.
There are really two stories about
profitable climate protection,
and you see that the rates
of implementation required
are a lot less than say
attentive companies achieve.
They do about six to 15 percent a year.
Everybody who does this makes money at it
so why should three or four
percent a year be hard,
and why should it be costly?
Well, 2/5 of the opportunity
is in burning oil,
and 2/5 in making electricity,
which is largely a coal story,
and I've told you the oil story already.
Here's a bigger version of it.
Here's a supply curve
happens to be BP data,
but I think the industry
pretty well agrees on this,
for roughly how many
trillion barrels of oil
can ultimately be extracted
besides the one trillion
we've already done,
at what free market
price assuming no OPEC,
so this is just actual production cost
plus a reasonable profit.
The OPEC Middle East countries say
they've got another trillion
barrels of cheap oil,
which is about what the world's
projected to need to 2030.
A lot of companies wanting to avoid
OPEC Middle East if they can
are already into expensive
frontier hydrocarbons,
and thinking about tar sands,
oil shells, coal-to-liquids,
very expensive stuff
and this doesn't count
inflationary cost escalation pressures
that have put these numbers
now much, much higher.
In fact, the tar sands need now about
90 or 100 bucks a barrel to break even.
Now let's splice into
this graph a conservative
scaling to the world of the
oil endgame opportunities
we found on the supply and demand side
then everything slides three
trillion barrels to the right,
and if that means that you
avoid this very expensive
carbon intensive stuff here
multiply in quantity
times carbon intensity
let's say you stop at this point
it means your carbon
emissions will go down
by at least a trillion tons,
and you'll save tens
of trillions of dollars
plus whatever monopoly rent
you would have been paying to OPEC.
That's a pretty good deal,
and you'll notice I haven't talked about
the peak oil argument about
how much oil is in the ground.
That's because nobody can
know who's right about
how much is in the ground
because about 94 percent of the reserves
are owned by governments which don't know,
or won't honestly tell
you what they've got,
but it doesn't matter who's
right about what's in the ground
because we ought to do
the same things anyway
just to make money or
improve our security,
or protect the climate.
Any one or more of those is
a perfectly solid reason,
and I don't need a fourth
indeterminate reason,
so I think this is kind of a distraction.
Now electricity I mentioned
that each Californian
is saving about 200 bucks
a year what I mean by that
is that the per capita use of electricity
has been flat for 30 years in this state
while it's gone up in
the rest of the country,
and up steeply in places like Texas.
The reason we've saved money on the deal
is not just making the electricity,
but we've avoided about
$100 billion of investment
to make and deliver it,
and that could be more
productively used elsewhere.
So per capital real income
during those 30 years
has gone up 79 percent in this state
yet without increasing
the use of electricity,
and equally important in
achieving that were efficiencies,
standards in buildings and appliances,
and rewarding utilities
for cutting your bill
not selling you more energy,
so they got enthusiastic
about making this happen,
and that reform is now starting
to spread pretty quickly.
It's adopted now or being
considered in half the states,
but we can go a lot further
back in the late 80s
my colleagues and I looked at the data
for about 1,000 technologies,
and concluded that you could save
about 3/4 of U.S. electricity
if you fully deployed them
wherever they would fit,
make sense, make money,
and the average cost
of doing that would be
in today's dollars about
one cent a kilowatt hour.
There were similar findings
in other more efficient countries.
The utilities think tank found
a somewhat smaller potential,
only 40 to 60 percent savings
at a few cents a kilowatt hour,
but still cheaper than
just making and delivering
power from a power plant
that cost nothing to build.
Of course, the savings
keep getting bigger,
and cheaper faster than we use them up,
so this is an ever
bigger cheaper resource.
It's as if the low-hanging fruit
were mushing up deeper around our ankles,
and spilling it over our boots
while the innovation tree
keeps dumping more fruit on our head.
There's an equal shock happening
on the supply side of electricity.
The upper graph shows
the amount of electricity
worldwide produced,
and the lower graph the
capacity installed worldwide
for what the Economist
Magazine calls micropower,
and there are two kinds.
The bigger tan wedge here
is cogeneration that is
producing both electricity and useful heat
together in buildings or factories,
thereby, saving at least half
of the cost, fuel and carbon.
Then the colored wedges underneath
are renewable sources
other than big hydro.
Well, together, micro
power is now producing
as of 2006 a sixth of
the world's electricity,
slightly more than nuclear,
a 3rd of the world's new electricity,
a sixth to over half of all electricity
in a dozen industrial countries.
This doesn't even count electric savings,
which are not as well tracked,
but are probably also really big,
which means that central power plants,
which we are told are indispensable
are probably now producing
less than half the world's
new electrical services
because they cost too much,
and have too much financial risk,
so in 2006 the last full data we have
these lower no-carbon power sources
added six times as much output,
and 30 or 40 times as much
capacity as nuclear added
that's the essentially flat line here.
In fact, nuclear added less
capacity than photovoltaics did,
or a tenth what wind power added.
Last year China or Spain or the U.S.
each added more wind power
than the world added nuclear capacity,
and the U.S. added more wind capacity
than its added coal capacity
the past five years put together.
I'm not sure what part
of the story anybody
who takes markets seriously doesn't get,
but it's pretty clear,
and in the U.S. even
before the capital collapse
there was not any investment
capital available.
Nobody put a penny into
proposed new nuclear plants
despite 100 plus percent new subsidies.
Now this is all a good thing for climate
because here's roughly
how many cents it costs
to make and deliver a new
kilowatt hour from nuclear coal,
combined-cycle gas, firmed wind,
three flavors of
cogeneration or efficiency
according to the latest
empirical data for the U.S.
from the last year or two.
We used to think that
making and delivering,
which is the red part,
a nuclear kilowatt hour
would cost about 11 cents,
but then the Keystone Study showed
the fuel was going to be a lot
more expensive in the future,
and the capital costs were going rapidly,
and now they've gone up even more,
so the latest numbers are
somewhere up around here from say
Moody's 18 cents a kilowatt hour or so,
and there's been a little
more escalation in coal,
actually, wind has gone
down a little bit last year,
but at any rate nuclear
is extremely expensive.
Now if you take these cents
per kilowatt hour cost,
and turn them upside
down take the reciprocal
you get how many kilowatt
hours you can get
by investing a dollar in different ways
of providing electrical services.
If you then correct for
the carbon emissions
of the several sources that
actually emit some carbon
then you can get how many
kilograms of carbon emission,
CO2, actually, you can displace
by spending a dollar in different ways,
so in a nuclear plant at the latest cost
would probably be down around
five kilograms C02 displaced per dollar,
but you can get about
2-1/2 times that much
with a firm power from a wind farm.
Coal gen is about similar.
Recovered waste heat coal gen better.
Efficiency at the average
cost actually observed,
which is two cents a kilowatt hour,
is right up in the top of the chart here,
and well designed efficiency,
which is less than half that
cost is way up in the ceiling.
In other words,
a new nuclear plant will save you about
two to 11 or more times less carbon,
and do so about 20 to 40 times slower
then if you spent the same money
buying efficiency and
micropower, the market winners.
In fact, if you bought a new nuclear plant
instead of efficiency
the result would be the
release of more extra carbon
then if you had spent the same
money building a coal plant.
So it's not good enough
just to be carbon free.
You also have to be cheap and fast.
If climates a problem we need
the most solution per dollar,
and the most solution per year,
and we need to invest
judiciously not indiscriminately,
otherwise, we're just making things worse
reducing and retarding climate protection.
There are a lot of conservatisms
in what I just showed you
including that I'm not counting
over 200 hidden benefits
of decentralized power
production that we wrote up
in an economist book of
the year six years ago,
and that typically increase economic value
by about a factor 10, for example,
because there's less
financial risk in building
small fast modular plants
than big slow lumpy ones,
or renewables give more valuable energy
because it doesn't have
a volatile fuel price
so you're hedged against
that financial risk.
As the market
starts to recognize these benefits more
it's going to further
accelerate distributed power,
decentralized power,
but even without doing that
you can make a good case right now
that even photovoltaics have
already passed cost crossover.
Tom Dinwiddie the founder
of Sun Power has done this.
He's shown that if you start building
a coal plant right now,
and right next to it in New
Jersey a photovoltaic plant
by the time the coal plant is done,
a photovoltaic plant big enough
to produce the same annual electricity
will be producing four
times as much peak output
at lower lifetime cost
because it has positive
cashflow from year one.
It's actually producing power and revenue.
It's much more peak
coincident in its output,
and you're riding the cost
curve down as you build it.
This is without counting
on any breakthroughs,
but just what's already baked in.
Okay, that's way too
much on principle one.
Let me run you quickly through
principles two, three and four,
and show how they fit together.
Okay, at the University of Zurich,
not Etihad the other one,
in the chem lab every year
they were turning lots of pure,
simple reagents into very
expensive toxic wastes,
until Professor Hanns Fischer said,
hey, why don't we turn
this around backwards,
and teach the same lab techniques
separating the toxic waste we just made
into the pure simple
reagents we started with?
The students really loved this.
They stayed nights and weekends
separating waste back
into starting reagents,
and waste went down 99 percent,
cost went down $20,000 a year.
By closing the loops and
designing out the toxicity
those students were making
themselves very much in demand,
and now they can go out and
save the chemical industry.
Or an example from the green
architect, Bill McDonough
about closed loops and
designing out toxicity
producing stuff the way nature does.
A division of Steelcase asked
him to look at the design
of a textile to cover office chairs
because the fabric that was being used
had edge trimmings that
had just been declared
by the Swiss government
to be a toxic waste
because of heavy metals
and other bad stuff
used in treating and dyeing the cloth.
Now we know why it's called dyeing.
So it kind of makes you wonder
what's the middle of the
cloth that you're sitting on.
So Bill and his German chemist colleague,
Dr. Michael Braungart,
reported that they tested 8,000 chemicals
used in the cloth business,
and only found 38 that didn't
cause cancer, mutations,
birth defects, endocrine
disruption, or bioaccumulation.
Well, then they took the 38 safe ones,
and showed that from those
you could make any color,
and you would end up making
cloth that would last longer,
feel better in your hand,
and cost 20 percent less to produce
partly because you didn't have to have
those embarrassing conversations
anymore with OSHA and EPA
because there was nothing in your process
that would hurt the
workers or the neighbors.
You know, you can take off your masks now.
When the inspectors came to
the plant using the new process
they found that the
water leaving the plant
was a little cleaner than the
Swiss drinking water going in
they thought their apparatus was broken,
but this was actually the correct result
because the cloth product was acting
as an additional filter,
a nice example of what happens Bill says,
when you take the
filters out of the pipes,
and put them where they
belong in the designers' heads
designing out everything
that shouldn't be there,
and as he points out this is
also a nice closed-loop system
because when you're done with the cloth
you can compost it in your veggie garden,
or if you have fiber
deficiency you can eat it.
Now what this is partly about I mentioned
is designing stuff the way nature does.
There's 3.8 billion years
of design genius out there
in which the 99 or so percent
of products and designs
that didn't work all got
recalled by the manufacturer,
and from the one percent that did work
we can learn a great deal about design.
My friend, Janine Benyus, has
beautifully shown all this
in a book called Biomimicry:
Innovation Inspired by Nature.
She asks things like how
do spiders make silk,
you know, tougher than the
Kevlar in bulletproof vests,
stronger than steel.
If we want to make Kevlar we
need boiling sulfuric acid,
and high pressure extruders.
Spiders don't do that,
they make this stuff in their
bellies out of digested bugs,
how do they do that?
Let's figure out and
try to do it ourselves.
There's actually three levels
at which biomimicry works
that are being applied now to products
like how does the thing work?
Self-cleaning paint like a lotus petal
rising brilliantly right out of the muck.
Adhesives using gecko
foot nano-hair technology.
Biomimetic rotors based on the
Fibonacci spirals of nature,
and producing much more
efficient fans and pumps.
Here's a big building the
biggest commercial building
in Harare based on the
architecture of termite mounds
to do passive cooling and air handling.
Then there are other kinds of innovations
about how is the thing made
like the inner shell of
abalone has to withstand
being pounded on by a rock
on the chest of an otter
that wants to eat the abalone.
If you get eaten you
don't get to reproduce,
so there's a very strong incentive
to have immensely tough inner shell,
and it turns out the abalone knows
how to make a material that
is about twice as tough
as our best missile nose cone ceramics,
but it's self-assembled at four degrees C
in seawater with no waste,
and now we figured out how to do that.
There are other levels
of biomimicry as well,
and when we put these in
an open public database
then the wisdom of all those organisms
that know how to do these
things will be available to us
for our design solutions.
Where this is taking us is a world where
the natural capitalist businesses,
the successful businesses are
those that take their values
from their customers,
their designs from nature,
and their discipline from the marketplace,
exactly the opposite of
what the biotech industry
tried to do with genetically
modified organisms,
and they have met the expected reception.
Also, this is a world where
conventional environmental
regulation starts to
become pretty anachronistic
because the companies that most need it
will probably by then be out of business
having spent too much time and money
making things that nobody wants,
making things that in the 20th century
we used to call wastes and emissions.
Now we have a better term we
call them unsalable production
because this focuses our minds on
why are we producing stuff
nobody wants let's design it out,
and then you get into
really serious innovation,
and competitive advantage.
Well, a very good way to do that
is cybernetics the signals
we get from the market
which depends on our business
model how do we make money?
For example, how clean
would you make your car
if its tailpipe instead of
being aimed at pedestrians
were just plumbed back into
the passenger compartment?
Probably real clean.
How safe would you make
your explosives factory
if you built your house next to it?
Very safe, that's what Mr. DuPont did.
They've led in industrial
safety ever since
called safety culture.
Do you know how Admiral
Rickover got really high quality
hull welds on the first
nuclear submarines?
He just told the welders and their CEOs
that they would be aboard
for the maiden dive.
Feedback is really powerful.
Systems without feedback
are stupid by definition,
therefore, if you change
the business model
to give the right feedback you
get a very powerful result.
Principle three of natural capitalism,
which we call the solutions
economy business model
in which both the
provider and the customer
get rewarded for the same thing
namely doing more and
better with less for longer.
So, Schindler, for example,
experimented successfully
with not selling you an elevator,
but leasing you a vertical
transportation service.
You didn't want to own a bunch of metal,
you wanted to be moved up and down,
and if they owned it they
would get the savings
from its being they felt more efficient,
and more reliable than competing ones,
and the more efficient
and reliable it was,
the more money you'd both make.
Dow instead of selling you a solvent
would rather lease you
a dissolving service.
They bring the solvent
it does the dissolving.
You never own it, that's good.
They take it away again and repurify it,
and the more loops they can put it through
with more customers,
and the less they lose each time,
the cheaper the dissolving
gets, the less they charge you,
the more market share they
get, the more profit they make,
everybody comes out ahead.
We're starting to see these
business models pop up
like in the ZipCar, Flexcar model
where, you know, your 96 percent idle car
doesn't have to belong to you.
It can belong to a company
that provides it by the hour,
and if you want to haul
drywall on Wednesday,
and pick up your hunny in
a sports car on Saturday
you could do both and you
don't need to own either one.
It turns out vehicle
miles traveled go down
by about half under this system.
Imagine if you're a car
company or an oil company,
and somebody else does this first
that could be pretty embarrassing.
The same thing in chemicals.
There are many interesting examples
where people are following the Dow example
starting to provide the
services of a chemical
without your having to
own the chemical itself.
The more productively it can be used,
or the more you can design it
out by changing the process
the more money you both make,
so this is a great way to
encourage principles one and two.
So let me tie this together.
Every year millions of tons of
carpet generally made of oil
go to landfill where they
sit for 10 or 20,000 years
because we use broadloom carpet
which this appears to be.
It comes in a big roll,
and after 10 or 20 years it
starts to look pretty ratty
so you have to shut down your operation,
move everybody out, roll
up the partly worn carpet,
send it to landfill, lay down
a new carpet made of more oil,
move back in, hope you don't get poisoned
by the fumes in the carpet
glue and resume operations.
This sounds pretty dumb, actually,
it seemed to Ray Anderson.
Now he'd already got
serious starting in '94
about resource efficiency,
and made hundreds of millions
of dollars bringing out waste
providing 2/5 of his
firms operating profit,
but then he got to thinking
about closed-loop production,
and they came up with
an experimental carpet,
which turned out to have a few issues,
but the basic concept is sound.
It's non-toxic, no
chlorine, climate neutral.
You can wash it with a garden hose.
It doesn't stain, doesn't
mildew, looks good, feels good.
Four times longer life
with a third less material,
and then you can completely
remanufacture it into the same stuff,
but then Ray said, well, wait a minute,
you don't really want to own a carpet
you want to walk on it and look at it.
Let's think about a solutions
economy business model
where instead of selling you a carpet
we lease you a floor covering service,
so every month the little
elves come in the night,
and replace only the worn carpet tiles,
which is about a fifth of them,
the other 4/5 are places
where you're not walking,
so they don't wear out.
Then you send the worn ones
back for remanufacturing,
replace them with fresh ones,
no disruption to your operation,
and Interface captures
the durability value,
another factor five here,
and you get better service
at lower cost as a customer
with 97 percent less material,
and with manufacturing
99.9 percent material.
Imagine competing with somebody who uses
a tenth the capital and a
thousandth of material you do
you aren't going to be very happy.
By the way, this is a tax
deductible net operating lease,
so it's a tax advantage financial product
not an idle balance sheet item,
and you employ more people
for delivering the service
than you lost jobs making less carpet.
Then the next step which
they're well ahead on
is to make the carpet out of
corn stover grown organically,
and normally in traditional
black farming communities
in the deep south in ways
that actually enrich,
tilth and rural culture
while protecting the climate
so that's a reinvestment in
human and natural capital.
As you can expect people at Interface
are really jazzed about this.
Anybody who runs a natural
capitalist firm will tell you
it's the most exciting place to work,
and anybody who runs any
kind of a green company
will tell you that it's a huge help
in recruiting, retaining and
motivating the best people
which is what competition
is ultimately about.
By the way, just the first
four years on this path
they more than doubled revenues,
more than tripled operating profits,
and nearly doubled employment
all at the same time not a bad deal.
So that leads me finally to principle four
that you reinvest to save
money into natural capital.
This is the easiest principle to follow
because nature does the production.
You just need to treat
nature with proper respect,
get out of the way,
stop messing things up.
This principle shows up
first in sectors like
raising trees, or crops, or
livestock, or catching fish,
things where your success depends on
the health of the ecosystem around you
so you get real direct
feedback about that.
Allan Savory, for example,
showed huge increases
in carrying capacity even on
very arid land highly degraded,
but it turned out it was
degraded not by overgrazing,
but my undergrazing and
grazing the wrong way
not following the grazing model
of the ungulates that used to live there
that would circulate around in huge herds.
Or in California 30 percent
of the rice growing area
switched over from burning
the straw after harvest
to flooding and inviting in
millions of ducks and geese
that would provide fertilizer,
and dig up little crustaceans and so on,
provide lucrative hunting licenses,
and you'd get the high silica straw
that used to cause lung problems downwind,
and now you use it for straw bale building
because bugs don't like to eat it,
you'd recharge the groundwater.
You're still a rice farmer,
but you got lots of other benefits,
and make a lot more money.
Or here's one I just saw in Borneo in May.
Dr. Willie Smits has
turned 19 square kilometers
of devastated grassland
that used to be forest
back into a lush rainforest
in just six or seven years,
and the whole model is built on
the welfare of the local Dayak people,
so if you come try to steal the wood
with the corrupt police
the Dayaks will kill you,
and they were recently
blowpipe headhunters,
so this is a credible threat,
and it makes the forest
self-protecting despite
the breakdown of rule of law.
So this little guy then
has some applied hope.
Even the zen apes this one's
meditating on a pineapple.
To tie it all together in
the U.S. at the moment,
or, recently, remember
that flow that's 20 times
your body weight per person per day,
well, that flow is what we
extract from the planet.
It's about 83 percent
mined, 17 percent grown,
but all that extracted flow,
well, 93 percent of it's actually wasted
in extraction and manufacturing,
so only seven percent ends
up in products that we ship,
and 6/7 of those are consumer ephemerals
that get thrown away
after one use or no uses,
so only one percent of what
we start with in the ground
ends up as durables.
What do we do with that when it's done?
Two percent of it gets remanufactured,
or recycled or composted.
98 percent is thrown away.
So the system the first order
is 99.98 percent pure waste.
What a business opportunity.
By the way, a lot of the waste is toxic
so when it comes back into nature
it poisons the ability of the ecosystem
to keep producing the
food and fiber we need,
and the ecosystem services
we can't live without,
so this is a really stupid
design let's change it.
In a natural capitalist system
we grow more, mine less,
and extract a great deal
less of what we need
through comprehensive
systematic resource efficiency
that affects how we
harvest, how we manufacture,
how we use, how long things last,
how they're dematerialized,
and then we close the loops in
manufacturing and after use,
so we almost eliminate what's thrown away.
These changes are all
encouraged by the shift
or the solutions economy business model,
and then we also design out toxicity,
so the little bit that comes back
does not harm nature's
regenerative capacity,
and, in fact, we
systematically increase that
by reinvesting money
made by waste elimination
back into natural capital
that's how all the pieces fit together.
This works even in a city
in difficult circumstances.
Our 14th chapter in the book
is the story of Curitiba,
a city the size of Houston or Philadelphia
that had quadrupled
population in 20 years.
It was a relatively poor city,
and yet by treating
its formidable, social,
economic, ecological needs
not as competing priorities
to be traded off in budget fights,
but as integrated design elements
with synergies to be captured.
A brilliant design process
led largely by architects,
largely by women,
made it one of the world's
great cities by design.
They integrated from the
start waste to nutrient flows,
transport and land use,
participation dignity,
education and health.
They never did just one thing.
They tried to solve
lots of problems at once
without making new ones,
and they treated their citizens
as their most precious resource
reinvesting a lot in people,
individuals, culture, and community.
That, of course, is really necessary
to have a harmonious society
and become better people.
Now most of the heavy lifting
was done by the private sector,
but government believing
it should steer, not row,
got the rules right,
so in the famous surface
rapid transit bus system,
maybe the world's best
public transport system now,
imitated in 84 cities,
the 10 competing companies
that run that are paid
not for how many people they carry,
but for how much route they serve,
so they spread out and
serve everybody equally.
Private sector leadership
is really important
in a world where over
half of the 100 or 200
top economic entities are not
countries they're companies.
This may be perhaps
other than the military
the only really effective
institution we have
with what it takes to solve
tough problems quickly at scale,
and that depends on integrative design,
and on how we deal with each other,
but the only adopters
of these four principles
are finding stunning
competitive advantage.
They're finding, as Ed Woolard
said, when he chaired DuPont,
that companies that take
such opportunities seriously
will do very well, while he added,
those that don't won't be a problem
because ultimately they won't be around.
So maybe the real problem with capitalism
this extraordinarily powerful
engine of wealth creation
involving the productive use
of and reinvestment in capital
all four forms of capital
is that we haven't really tried it yet,
but the early returns are encouraging.
I would urge you to take a
look at the website natcap.org
where you can download the
book for free in English,
and it's also in lots of other languages.
We will soon post a bunch of updates,
and things that got pruned out of the book
in late slash-and-burn editing.
I would like to add more cases,
so I hope any entrepreneurs in the house
will let us know how you're doing.
If anything I've said
seems too good to be true
just remember the Marshall McLuhan remark
that only puny secrets need protection.
Big discoveries are protected
by public incredulity.
Thank you for your kind attention.
(applause)
(soft music)
