Google: Implications of California’s Proposition 23

Keywords: Google, California Proposition 23, Vinod Khosla, William Wiehl, cleantech, A.B. 32

Vinod Khosla
Vinod Khosla

Google convened an event at their Silicon Valley campus to discuss the implications of California’s Proposition 23, an attempt to rollback the state’s ambitious climate legislation (A.B. 32). In an article at Greentech Media, panelists, including venture capitalist Vinod Khosla, sounded upbeat on contributions California cleantech ventures will make toward solving US energy and climate challenges.

Highlights from Google’s Implications for California Proposition 23 Event

  • Khosla stole the show with his outlook for the clean-tech innovation and energy use. “In 10 to 15 years, we will be shutting down (power) plants” because of an excess of electricity in this country, Khosla said. There is an “infinite” opportunity for technological innovation.
  • Khosla’s firm is backing companies that hope to cut energy use in lighting and data center server racks by 80 percent.
  • Regarding China’s serious investment in cleantech, Khosla said “I won’t say China is winning the cleantech race,” he says. “But they are clearly paying a lot more attention to the race.”
  • Asked if there was an advantage to creating companies in Silicon Valley rather than China, Khosla was emphatic. “No question about it. The people are here. The markets are here.”
  • According to Khosla, nuclear power no longer has an advantage over renewables. There hasn’t been a nuclear plant build in recent years that can beat $7,000 a kilowatt. That makes wind and solar (in some parts of the world) competitive, he says.
  • Proposition 23 is a threat because it will kill the clean-energy markets that California’s A.B. 32 created. Both Khosla and Google Green Energy Czar William Wiehl concur on this point. Proposition 23, which will go to the ballot in November, would suspend A.B. 32 [see note below for background on A.B 32] until the state’s unemployment rate drops to 5.5 percent or less for four consecutive quarters. Texas oil companies Valero and Tesoro back the measure. A.B. 32 sets reporting guidelines for polluters, establishes a statewide limit for carbon, and guides emissions back to 1990 levels by 2020.
  • A.B. 32 has helped create 500,000 cleantech jobs in California, Wiehl says.
  • Google, adds Wiehl, has made strides with energy efficiency. The company builds its own data centers and servers. As a result, data center energy use is half of what it would be if the company followed industry-standard best practices, he said.
  • As to the next Google — “There is no doubt in my mind we will see 10 of these” in cleantech, says Khosla. “Today, California has the pole position to win that race.”


California’s major initiatives for reducing climate change or greenhouse gas (GHG) emissions are outlined in Assembly Bill 32 (signed into law 2006), 2005 Executive Order and a 2004 ARB regulation to reduce passenger car GHG emissions. These efforts aim at reducing GHG emissions to 1990 levels by 2020 – a reduction of approximately 30 percent, and then an 80 percent reduction below 1990 levels by 2050. The main strategies for making these reductions are outlined in the Scoping Plan. Also provided here are links to state agencies and other groups working on climate issues which are being coordinated by the state’s Climate Action Team.

More on the California’s Prop 23 initiative here:

California’s Prop 23 Morphing into Prop 26

Beijing Power Consumption Hits Historic Peak During Extreme Heat Wave

China Daily is reporting the extreme heat and humidity in Beijing has lead to record consumption of electricity.  Beijing’s power consumption exceeded 15 million kilowatts for the first time in history on July 23, around 5 million kilowatts of which was consumed by air-conditioners, according to a report from the Mirror Evening News.

The picture below, with the iconic Gucci shirt, provides ironic symbolism for the superconsumer trends unfolding in China.

Beijing Heat Wave
(source: China Daily)

As China’s population has grown, per capita income and consumption have grown. Let’s take a look at the trends in energy use and per capita income relative to US and India. Using GapMinder’s Trendalyzer with energy consumption data from BP’s Statistical Review of World Energy 2010 and income data from the IMF, we can see some powerful trends unfolding (N.B.: Data presented for 1965 through 2008, 1 year steps, circle area proportional to population size, energy use in tonnes of oil equivalent):

Energy Consumption and Income for US, China, and India
Per Capita Income and Energy Consumption in China, India and the US
  • China and India show steadily increasing per capita income, with China having the biggest change – outperforming India more than 2 to 1.
  • This increase in income is fueling the growth of China’s middle class. Western-style patterns of consumption are leading to China’s increased consumption of energy, water, raw materials… The trend is strong and steady, with no signs of slowing.

To meet this growing need for energy, China has been building about 2 power plants per week – mostly coal burning. As is widely known, coal power generation is about as dirty as it gets, and accounts for about 20 percent of Greenhouse Gas (GHG) emissions globally. Coal is used to produce about 70% of energy consumed in China.

The Chinese are in a climate change death spiral. Using the heat wave in Beijing as an example – to meet the expanding populations growing demand for energy, China builds about 2 coal-fired power plants per week. The coal exacerbates global warming. The population turns up their air conditioners, which leads to record energy consumption and drives the need for more power plants, and the spiral continues until… What?

For more on record heat and the impact it has on people, food production and wellbeing, see NOAA: June, April to June, and Year-to-Date Global Temperatures are Warmest on Record.

Sustainable Energy Security: Strategic Risks and Opportunities for Business

Lloyds of London, the insurance market, and Chatham House have published a white paper on Sustainable Energy Security that details the risks and opportunities for business.

Lloyd’s CEO, Dr. Richard Ward, doesn’t mince words in his foreword to the white paper:

This report, jointly produced by Lloyd’s 360 Risk Insight programme and Chatham House, should cause all risk managers to pause. What it outlines, in stark detail, is that we have entered a period of deep uncertainty in how we will source energy for power, heat and mobility, and how much we will have to pay for it.

Is this any different from the normal volatility of the oil or gas markets? Yes, it is. Today, a number of pressures are combining: constraints on ‘easy to access’ oil; the environmental and political urgency of reducing carbon dioxide emissions; and a sharp rise in energy demand from the Asian economies, particularly China.

All of this means that the current generation of business leaders – and their successors – are going to have to find a new energy paradigm. Expect dramatic changes:

  • Prices are likely to rise, with some commentators suggesting oil may reach $200 a barrel.
  • Regulations on carbon emissions will intensify.
  • Reputations will be won or lost as the public demands that businesses reduce their environmental footprint.

The growing demand for energy will require an estimated $26 trillion in investment by 2030. Energy companies will face hard choices in deciding how to deploy these funds in an uncertain market with mixed policy messages. The recent Deepwater oil spill shows all too clearly the hazards of moving into ever more unpredictable terrain to extract energy resources. And the rapid deployment of cleaner energy technologies will radically alter the risk landscape. At this precise point in time we are in a period akin to a phony war. We keep hearing of difficulties to come, but with oil, gas and coal still broadly accessible – and largely capable of being distributed where they are needed – the bad times have not yet hit. The primary purpose of this report is to remind the reader that all businesses, not just the energy sector, need to consider how they, their suppliers and their customers will be affected by energy supplies which are less reliable and more expensive.

The failure of the Copenhagen Summit has not helped to instil a sense of urgency and it has hampered the ability of businesses – particularly those in the energy sector – to plan ahead and to make critical new investments in energy infrastructure. I call on governments to identify a clear path towards sustainable energy which businesses can follow.

Independently of what happens in UN negotiating rooms, businesses can take action. We can plan our energy needs, we can make every effort to reduce consumption, and we can aim for a mix of different energy sources. The transformation of the energy environment from carbon to clean energy sources creates an extraordinary risk management challenge for businesses. Traditional models that focus on annual profits and, at best, medium term strategies may struggle. Parts of this report talk about what might happen in 2030 or even 2050 and I make no apology for this. Energy security requires a long term view and it is the companies who grasp this who will trade on into the second half of this century.

Executive Summary

  • Businesses which prepare for and take advantage of the new energy reality will prosper – failure to do so could be catastrophic.
  • Market dynamics and environmental factors mean business can no longer rely on low cost traditional energy sources.
  • China and growing Asian economies will play an increasingly important role in global energy security
  • We are heading towards a global oil supply crunch and price spike.
  • Energy infrastructure will become increasingly vulnerable as a result of climate change and operations in harsher environments.
  • Lack of global regulation on climate change is creating an environment of uncertainty for business, which is damaging investment plans.
  • To manage increasing energy costs and carbon exposure businesses must reduce fossil fuel consumption.
  • Business must address energy-related risks to supply chains and the increasing vulnerability of ‘just-in-time’ models.
  • Investment in renewable energy and ‘intelligent’ infrastructure is booming. This revolution presents huge opportunities for new business partnerships.

A change in the energy market balance between East and West

Advanced economies remain the biggest consumers of primary energy per person but by 2008 non-OECD countries led by China and India had outstripped them in terms of the share of world demand. This shift began in the 1990s, partly because manufacturing shifted eastwards. Meanwhile, lower population growth, de- industrialisation, greater efficiency, higher fuel prices and a concern for the environment are lowering demand for oil-based fuels and coal in the OECD.

These consumption trajectories mean there is likely to be a tipping point in 2015 when countries in Asia-Pacific need more imported oil in total than the Middle East (including Sudan) can export.

Middle East oil surplus vs Asia-Pacific deficit
Middle East oil surplus vs Asia-Pacific deficit (Source: John Mitchell, Chatham House 2010)

The white paper goes on to detail market forces, energy trends, risk and opportunity.  This is recommended reading for business and government leaders and risk managers.

Walmart Partnering with Patagonia on Sustainable Business Practices

A recent article in Forbes describes how Patagonia, one of the early thought-leaders on sustainable business practices, and Walmart, are partnering to help Walmart move up the sustainable business learning curve fast. The article emphasizes the need for not just being sustainable inside the business, but up the supply chain as well.

Highlights of the Forbes article:

  • Patagonia is working with Walmart to develop a sustainability index for its products
  • This initiative is being driven by Walmart CEO, Lee Scott, working with Patagonia’s CEO, Yvon Chouinard.
  • Walmart CEO Lee Scott first articulated a sustainable vision for Walmart in 2005 saying Walmart “must operate in a world that is healthy.
  • Walmart is assessing things like how much water is consumed in the manufacturing process of a product, whether pesticides are used, impact on climate change, energy efficiency, etc.
  • Walmart wants to place a scorecard on its store goods that rate products on eco-friendliness and social impact.
  • Walmart is evaluating its suppliers and will give preference to those who best comply.
  • Patagonia has helped others, including Nike, Gap, REI, and North Face.
  • Nike has gone on to form GreenXchange, a consortium of ten companies (among them, Yahoo) that will trade eco-friendly intellectual property.

Most businesses I talk with want to do the right thing in terms of caring for the planet, but it rarely shows up in their mission statements or operational imperatives. However, if you ask any business person if their business depends on a healthy customer and a healthy supply chain, the answer is an obvious “Yes!”

Sustainable Business Interdependence

When I talk with business about strategies and tactics for sustainable business, we invariably come to this picture:

Business Interdependance

If a business confines their view of global issues to within their own business, they might think that climate change, water scarcity or high energy costs don’t impact them. They might say “Well, we don’t use much water, so that’s not an issue for us.” But if the view becomes more expansive to include the supply chain and the customer, they find increased risk to “business as usual.” Everyone interdepends on everyone else. Just as the proverbial rising tide lifts all boats, if the tide falls for one, it falls for all.

For example:

  • Water tables are falling rapidly in China. If a production plant in China, making product for Walmart, depends on water for the production, and the price of water suddenly rises, or access is limited by government edict, that impacts Walmart cost of goods and product flow.
  • If Walmart customers can’t afford to buy as much because they are spending too much on energy bills and gas expenses because the price of oil is at $120 a barrel, Walmart top line revenue growth declines.

Even if a business isn’t selling directly to “the consumer,” there is risk. If a company has businesses as a customer segment, they must understand how those businesses will be impacted. For example, if Walmart customers choose to spend less money at Walmart because of rising energy prices or fear of losing a job, Walmart will place less orders with their vendors and vendor order volume will fall. So consumer wellbeing matters to vendors all the way up the supply chain.

Walmart is the biggest retailer in the world. They are taking the long view and understand the interdependence of their success with the health of their supply chain and customer base.

Regarding sustainable practices, as a business expands its field of view to include supply chain and customer, there are three key things to examine:

  1. Mitigation – Understanding what impact global issues will have on the business and creating adaptive strategies and tactics to prepare. Shareholder value is protected.
  2. Innovation – As a business understands the global trends and challenges, they can innovate solutions that will have real value for their business, supply chain and customers, and beyond the, open new markets and opportunities. Shareholder value is increased.
  3. Advocacy – Are the steering directions a business gives to representative associations, lobbying firms, chambers of commerce and state and federal representatives in alignment with new found adaptive strategies and tactics?

Thinking like Walmart – What can a business do to ensure a healthy world?

Perhaps we should call it the The New Trickle Around Economy!

More on this in a future post. For now, here are some photos I took while visiting Walmart headquarters, in Bentonville, AK, for a book I am writing on sustainable business strategies. These pictures were taken while touring one of Walmart’s flagship stores in Fayetteville, AR.

Walmart store green steps program, sign at check out
Walmart store Green Steps program, sign at check out, in Fayetteville, AK
Walmart store green steps program, rain water harvesting catchment tanks at back of store
Walmart store green steps program, rain water harvesting catchment tanks at back of store
Walmart store green steps program, rain water harvesting description
Walmart store green steps program, rain water harvesting description
Walmart store green steps program, wetlands for catching run-off
Walmart store green steps program, wetlands for catching run-off, and purifying it naturally.
Walmart store green steps program, streamlined truck to reduce fuel consumption
Walmart store green steps program, streamlined truck to reduce fuel consumption

China: The Next Superconsumer?

There’s a good article in the Guardian that builds on data I presented last week in the article The Real Population Problem. One of the my charts shows the growing per capita income and consumptions patterns in China. As the population has grown, per capita income and consumption have grown. Using GapMinder’s Trendalyzer with energy consumption data from BP’s Statistical Review of World Energy 2010 and income data from the IMF, we can see some powerful trends unfolding (N.B. data presented for 1965 through 2008, 1 year steps, circle area proportional to population size, energy use in tonnes of oil equivalent):

Regional Energy Consumption and Income Trends
As income rises so does consumption – of commodities like energy, as well as retail goods.

Income has flattened in the US and Europe, and people are spending less and saving more.  For global retailers, China’s growing per capita income is attracting businesses that cater to the “consumer.”

Highlights of the Guardian article:

  • The fastest-growing consumer class in China are single women. They have high levels of disposable income and a craving for designer labels.
  • State planners forecast that half the population will rise to the “middle class” by 2020.
  • As China’s consumer population rises, 4.5 more earths will be required to feed the need.
  • Shanghai, the second busiest port in the world, is the beachhead for retail giants like Kentucky Fried Chicken (2,000 outlets in china), McDonald’s, Starbucks, Louis Vuitton, Gucci and Chanel, Wal-Mart, Carrefour, Tesco and Ito Yokado.
  • Mattel, the world’s biggest toy company, marked the Barbie doll’s 50th birthday by opening the world’s largest Barbie emporium.
  • China is now seeing a surge in obesity, diabetes and heart disease. Obese children used to be rare in China; now nearly 15% of the population is overweight.
  • To feed its growing livestock, China imports huge quantities of soya, much of it from Brazil, which has resulted in accelerated clearance of Amazonian forest and Cerrado savanna
  • In Shanghai, the average carbon dioxide emissions of its residents have already overtaken those in Tokyo, New York and London.

The Guardian article is an edited extract from When A Billion Chinese Jump by Jonathan Watts.

Climate Change May Reduce Protein in Crops

The concentration of carbon dioxide in Earth’s atmosphere may double by the end of the 21st century.

In a recent Science Magazine article, scientists at University of California, Davis discovered that increased levels of carbon dioxide in the atmosphere can reduce the protein content of crop plants by as much as 20 percent.  Their research shows that high CO2 levels interfere with the ability of plants to convert nitrates into proteins, thus reducing plant productivity and food quality. Increasing nitrogen fertilization might compensate for slower nitrate assimilation, but such fertilization rates might not be economically or environmentally feasible.

Food = Energy

Most crop fertilizers are produced from oil. As oil supply tightens, the price of oil will rise.  The price of fertilizer will track that increase.
About 17 percent of fossil fuels are used to produce our food.  The most energy intensive activities are:

  • Fertilizer & pesticide production
  • Irrigation
  • Transportation
  • Processing

Fertilizer and pesticide production accounts for 31 percent of fossil fuel usage in food production.

Business Impact

Big Ag should be concerned about this.  They are the heaviest users of fertilizers and pesticides.  It’s time for them to think about how to adapt to this.  Organic farmers should be in much better shape. They avoid the use of fossil fuel-based fertilizers and pesticides.  Organic sources of nitrogen, such as compost and manure, are their soil amendments of choice.

Community Impact

Food cost represents from 16% (developed nations) to over 60% (developing nations) of a family’s budget. As climate change reduces food quality and oil inflation drives up the cost of food production, family’s will struggle – receiving less nutritional value, at greater cost.

Government Impact

Looking at this news through the lens of government, three issues rise to the top:

  1. If you need to feed a lot of people (think India and China), it’s all about efficiency.  A 20% drop in protein production is a big problem.
  2. Make sure your Department of Agriculture and extension agents are at the top of their game, developing and disseminating best practices for our climate changing world.
  3. If your state/country produces a lot of food (think California, the grain belt, Canada, Europe and the UK), think about ramping up non-fossil fuel-based sources of nitrogen.

One clever approach to producing organic nitrogen – use farm animal waste to generate biogas for energy production, and use the resultant nitrogen-rich composted manure to amend farmland soil.  The benefits?

  • Less dependency on oil.
  • Strengthen the local economy through local nitrogen and energy production.
  • Capture the methane in animal waste before it enters the atmosphere.
  • Healthier food

The Effects of Climate Change on Agriculture, Land Resources, Water Resources, and Biodiversity in the United StatesTo learn more about Climate Change impact on food production, read the US Department of Agriculture’s report The Effects of Climate Change on Agriculture, Land Resources, Water Resources, and Biodiversity.  It is an outstanding example of government in action:

  • Recognizing the fundamental importance of food to a functioning society.
  • Laying out the impact climate change will have on food production.
  • Detailed guidelines for farmers – how to mitigate impact and plan for changes to crop strategy as global warming and rainfall patterns shift.