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Two Steps Forward

Amory Lovins' Burning Quest to 'Reinvent Fire'

Amory Lovins has a new book out today. That's worthy of a news story in itself, since many of his previous works -- books and papers going back to the 1970s -- have spurred radical new thinking in energy, transportation, and building systems. And not just thinking: an impressive list of companies and governments around the world can trace some of their more innovative products, processes, and business models to the thinking of Lovins and his colleagues at the Rocky Mountain Institute, of which he is co-founder, chairman and chief scientist.

Lovins' new book, Reinventing Fire: Bold Business Solutions for the New Energy Era, pulls from the last 30 years of Lovins' and RMI's work. In it, he and his team offer a plan for running a 158 percent-bigger U.S. economy in 2050 with no oil, coal, or nuclear energy.

I recently talked with Lovins about the book, its implications for companies, and what it will take to make its vision a reality.

Joel Makower: Amory, let's start with the title. Tell me about where the idea of "reinventing fire" came from?

Amory Lovins: Well, fire made us human, fossil fuels made us modern and we now need a new fire that makes us secure, safe and durable. The old fire of fossil fuels has served us very well and created our wealth and enriched the lives of billions. It also has costs to our economy, health, environment and security that are starting to erode the prosperity and security it created, so it's time for a new fire. Because this is the biggest infrastructure change perhaps in the history of our species, we wanted to give it a suitably expansive title.

JM: And what did you find?

AL: Reinventing Fire shows how to run a very prosperous 2050 U.S. economy -- 2.6 times today's -- with no oil, no coal, no nuclear energy, one-third less natural gas and a $5 trillion lower net-present-value cost than business as usual. We also found the transition requires no new inventions and no Act of Congress and can be led by business for profit.

JM: Many of us, and especially you, have been talking about some of these things for a long, long time. How is Reinventing Fire different from past efforts to push renewables and efficiency?

AL: I think in three main respects and several minor ones. The first two come from a remark attributed to General Eisenhower: "If a problem cannot be solved, enlarge it." That is, the reason you couldn't solve it wasn't that it wasn't small enough to be bite-sized, but rather the values were drawn so narrowly that it didn't encompass enough options, degrees of freedom and synergies to make it solvable.

So, in that spirit, we integrated all four energy-using sectors – transportation, buildings, industry and electricity – and having spent the last three or four decades deeply immersed in practical work in all four of those, we were in an unusually good position to do that integration. So we found, as you'd expect, for example, that it is much easier to solve the automotive and electricity problems together than separately.

Secondly, we integrated four kinds of innovation, not just the usual two – technology and policy – but also design -- that is, how technologies are combined -- and strategy -- that is, a new competitive strategies and new business models, which turn out to be even richer in innovation than technology and policy. And the four together are much more than the sum of their parts, especially in creating deeply disruptive business opportunities.

A third point of departure is that this work is trans-ideological. It doesn't matter whether you care most about profits, jobs and competitive advantage or about national security, or about health and environmental stewardship. We ought to do the same things anyway for whatever reasons. So, if we focus on outcomes not motives, and do the things we agree ought to be done from whatever perspective, then the stuff we don't agree about tends to become superfluous.

There are many other unusual features of this work that you will have noticed. It's about solutions not problems. It's about transformation not incrementalism. And it's about practice not theory. It does not assume internalization. In fact it explicitly assumes all positive or negative externalities are worth zero -- a conservative estimate. Of course, if we counted them, the net present value surplus would be a lot bigger than the $5 trillion that we found just in private internal costs. It's also a very collaborative effort -- over 60 of us, about three-quarters of our total staff and I were engaged in this during a year and a half. And we were blessed with terrific collaboration and support from industry in all four sectors in sharing data and insights and in peer review. So, we think it's a fresh, rigorous and coherent alternative vision that, so far, has been lacking and that we hope will change the national energy conversation.

JM: Speaking of transforming markets, people often talk about three big levers that one needs to pull to bring technologies to scale. One is the technologies themselves, another are the policies and a third are the markets. Obviously it's never a matter of pulling any one of those levers really hard, it's a matter of pulling them all in sequence. It seems that the technologies exist that we can do a lot of this as you've pointed out many times; that we can do a lot of this with existing technologies. The markets are emerging. I'm wondering how much of this is all about policy -- sending the right signals and getting the prices right -- and how much of this is just helping the markets to develop.

AL: We put much more emphasis on barrier-busting and we did find that certain policy innovations are needed to enable or speed the transition on the business adoption. But we also found that none of those required an Act of Congress. They could all be done administratively or at a state level.

For example, rewarding utilities for cutting the bill and not sell you more electricity has to happen at a state level, where utilities are regulated. Allowing fair interconnection and competition on the grid is partly a state and partly a federal matter, but the federal part is done administratively by the FERC [Federal Energy Regulatory Commission]. Again, no act of Congress required. For light-duty vehicles, the key missing element is size and revenue-neutral feebates for efficient new autos, but those can perfectly well be done at a state level.

None of the results that we describe require carbon pricing or other internationalization, even though that would be very helpful and correct. But it's not essential; it's certainly not sufficient, because if you get the prices right but don't bust barriers then not much happens. And, in the long run, it's probably not as important as one might suppose, because given the very large cheap potential we found on the demand side, an efficient carbon market will ultimately clear low, so carbon would be a long-term short.

Of course, this independent view that we don't need to wait for Congress to command what unnatural act we should commit in the marketplace is alien inside the Beltway. But about 2,000 miles west of the Beltway and have no trouble imagining that the dynamism of our most effective institutions -- namely free enterprise and co-evolution with civil society -- accelerated by military innovation could be used to end-run our least effective institutions, notably Congress.

JM: What role does the current economy play and -- assuming it's gonna persist for some while, does it make it easier or harder to reinvent fire?

AL: Both. Easier because it gives time to rethink. Typically, a slump is when you look for the next wave of innovation that will bring you out of it in a more commanding competitive position. And at a time of fiscal stringency it might be easier to get rid of some of the deeply distorting energy subsidies.

Also, the heightened competitive pressure of a recession puts more focus on bringing down costs and risk and. You could interpret our book as being about design for risk management.

JM: A lot of mainstream companies have been doing some of these things -- or, at least, they feel they've been doing these things. They've been gradually ratcheting up the energy efficiency of their operations – lighting, buildings and the like . They've been bringing in renewables in some fashion, either directly or indirectly. Is that enough? Assuming not, how do you push companies to go further? What do you find the best motivators in getting them to step this up in some significant way?

AL: Companies tend to be motivated by increased revenue, competitive advantage and decreased risk, so we describe all three in detail at the end of the sectoral chapters -- Chapters 2 through 5: who should do what, depending on the level of adventurousness and how advanced your practice already is.

I would like to see coming out of the conversation about reinventing fire, a lot more attention to integrative design, which, on the demand side is the key to the results we got for transport and building industries. Integrative design optimizes whole systems for multiple benefits rather than isolated components for single benefits. And it often makes very large energy and resource savings cheaper than smaller-dose savings, so it often deals expanding, not diminishing, returns to investments in energy productivity and that is a bigger game-changer than any single technology.

Having now applied integrative design in over 1,000 buildings and $30 billion worth of factories and various vehicle designs, we're confident that it's replicable, scalable, teachable and revolutionary in its competitive implications.

We suggest some different ways of looking at supply and supply-demand integration than are commonly done. For example, in the electricity sector, we use NREL's ReEDS model to examine business-as-usual, a new nuclear and so-called clean-coal scenario, centralized renewables and distributed renewables. And the surprise to many will be that we found these four electricity futures for 2050 differ immaterially in cost but profoundly in risk, so it's very much a risk-management play.

I think some of the novel competitive strategies will also surprise people -- for example, with help from the former head of McKinsey's automotive practice we were able, finally, to nail the production economics and show that ultra-lighting autos is free because it's paid for by simpler manufacturing and smaller power trains. But it then makes electrification affordable. So, by combining very light, slippery but safe vehicles with electric traction, you're bringing into play three very steep learning curves -- one in the advanced composite materials, another in the structural manufacturing and a third in the electric power train. And those three are strongly synergistic.

The result is as game-changing as switching from electric typewriters to Moore's Law-driven computers. And, indeed, BMW has already confirmed that in their i3 -- one of three carbon-fiber electric cars announced for mass production by three German automakers in the next two years -- the carbon fiber is paid for by needing fewer batteries.

JM: You mentioned BMW, and that's the first company you've mentioned in this conversation. It gets me to where I wanted to go next: Are there any poster-child companies that you would say represent Reinventing Fire?

AL: Not comprehensively. The nearest would probably be Interface. But there are many others that we mention for outstanding achievement in particular areas. For example Dow, in efficiency. Certain real estate developers, like the way Tony Malkin adopted integrated design for the Empire State Building retrofit.

In automotive, the three companies that are starting 2012 or 2013 volume production of electrified carbon fiber cars are BMW, Volkswagen and Audi, but there others making important progress and by my count, somewhere between four and seven automakers have adopted or are moving notably toward the strategy we outline. In the United States, I'd say Ford is probably in the lead but there's plenty of competition emerging and there's a lot happening behind-the-curtain in Japan and in Korea.

In electricity, it's a much more fluid and diverse field of players. This is the sector that's facing the most numerous, diverse and profound disruptions of any sector as 21st-century technology and speed collide with 20th- and 19th-century institutions, business models, cultures and rules. Generally, when you have a complex system dependent on fast and slow variables it doesn't end well, so this is one of these inflection points at least as big as the internet where vast fortunes will be made or lost and we need to keep the lights on meanwhile.

Some utilities are starting to realize that the threat of radical bypass from unregulated products that can amount to a virtual utility is worse than what cell phones did wire-line phone companies, but that this doesn't have to be treated as a competitive threat. There are a half-dozen business models that could make it into an important opportunity. And of all the alternative strategies, the one that's clearly unwise is Ostrich, which is where some companies still find themselves frozen, like deer in the headlights, with all this turbulence coming at them.

So we're starting to work with a number of utilities to think through new business and regulatory models and their strategic implications. Certainly there are very important hardware vendors and service providers and aggregators on both the supply and the demand side and clean electricity is about a $200 billion-a-year business, and growing explosively worldwide.

JM: After all these years, are more or less helpful that we can get this right?

AL: I think the talent and the business leadership are certainly there to do it, with or without help from Congress. Our hope in putting out this coherent alternative vision, very rigorously grounded in the existing technologies and meeting the sectors' normal hurdle rates, but with less risk, is going to stimulate the more bold and foresighted business leaders to be early adopters on a scale that will create competitive pressure for emulation because that's how we do our outreach at RMI.

JM: I'll take that as "hopeful."

AL: We certainly wrote this in a spirit of implied hope. And I think the scope for driving it from the C suite, not from K Street, is going to be attractive across the political spectrum because everybody's tired of gridlock. And the notion that business can lead the energy transition may be novel but it's rapidly gaining credence and momentum.

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