ZOOM: The Global Race to Fuel the Car of the Future | Vijay Vaitheeswaran | Talks at Google

Welcome to today's Authors at Google's event with Vijay Vaitsiswaran. He is with Ian Carson, a co author of the Global Race to Fuel the Car of the Future, which hopefully all of you guys are now holding in your hands. It's a book that chronicles the global trends in technology that are moving us towards the development of oil free automobiles and he makes the argument for the transformation from carbon based energy sources to new fuels and technology. But got a recent write up in the New Yorker which hopefully some of you guys read, which is great. Vijay is a correspondent for the Economist magazine where he focuses on issues of energy and health care. He'll be speaking today about his book and then taking questions from you guys. If you do have a question, please wait for the microphone to come to you as we are recording this for YouTube as usual. And with that said, please join me.

In welcoming Vijay to Google. Thanks a lot Ricky. Appreciate the warm welcome and it's great to be back at the Googleplex. I had the opportunity to spend a weekend here a few months back when I was here for the Saifu get together which is an amazing weekend of free thinking and thinking about innovation. The topic I wanted to talk to you about is what I call the coming energy revolution. I think there's some extraordinary changes that are happening that are not so different from the changes that we saw three decades ago. With the arrival of the PC, challenging the predominant computing paradigm of mainframes, with the arrival of the Internet of cellular telephony, we're beginning to see similar kinds of trends that I think bode very well and that also help challenge some of the prevailing conventional wisdoms that you'll see in the press today. We're in an age of $100. Oil, energy and climate change are in the headline almost every day. And among the things we'll hear the world is running out of oil or that we've hit Hubbard's peak. The idea that $100 oil is bad for consuming countries like America and really good for OPEC and consuming and producing countries. The idea that high prices are here to stay permanently higher oil prices. I hope to persuade you that all of these are myths and some of them are dangerous myths when we think about the energy world. And I'd welcome your questions of course, and your tomatoes afterward when you disagree with me. But I mentioned those provocative myths that I want to debunk just to make sure that no one falls asleep when I'm talking. Before I get to the future of energy and environment, I thought I'd actually start with the past. If you look back six decades ago, Mahatma Gandhi asked a question that's still very relevant today. He asked, how many planets? How many planets will it take? He asked. And this was at a time when India was newly independent from Britain. It was the great hope for Asia, the rising giant. Britain, of course, had been the great colonial power of the previous 200 years. He asked, how many planets will it take if India follows the same reckless path of industrialism that Britain has taken that has already consumed over half the planet's resources? How many planets? If we were to look at the great question that hangs over energy and environment today, it's China. Today's rising Asian star this year is going to pass America as the biggest greenhouse gas emitter, within a few years will be the world's largest energy consumer. If you were to recast Gandhi's question to be the relevant one for our times, you'd say perhaps how many planets will it take if China industrializes, urbanizes, motorizes, following the same pattern that the United States has taken. That is, if every Chinese wants to jump into a gas guzzling SUV like we do, what does this mean for the planet? And that I think just puts into contrast into sharp relief three ways in which the current energy system that we have today is fundamentally unsustainable. Three pillars of instability for the needlessly dirty and inefficient ways that we use energy. Now, I use my words carefully. I'm not anti energy, on the contrary, I think energy is a great thing. I love cold beer and hot showers, right? But it's how we get the energy services that we want. The ways, the needlessly inefficient and dirty ways that we use energy that I argue are unsustainable for three reasons. The first is the link between energy and poverty. And this is something that often doesn't get mentioned in the headlines. The second is a link between energy and geopolitics. And this of course, you do see in the headlines, especially with the Middle east and the war in Iraq. And the third, energy and environment. We're going to hear a lot more about this in future as concerns about global warming become more powerful in future. Just briefly on each when you talk about energy and poverty. There are 1.6 billion people on Earth who don't have any access to modern energy, no electricity, no modern fuels, none of the things that we take for granted in most parts of the world. And as you can imagine, they're in sub Saharan Africa, South Asia, parts of the Caribbean and Latin America. In these countries, it's usually women and girls who walk miles a day to fetch agricultural residue, twigs, cow dung, whatever they can get their hands on to try to make the energy possible in their homes. They burn them in little makeshift cookstoves because of the incomplete combustion, the partial combustion, the particulate pollution released in their huts, kills so many of these people that the World bank and the World Health Organization have calculated this is the leading preventable cause of death on earth, alongside malnutrition. It's an absolute tragedy. But when was the last time you saw a Live Aid concert to stamp out the cow dung fires in India? Hey, even Angelina Jolie doesn't care. It's not a sexy issue, but if we really think about the human condition, we would care. If you think about the sustainability of today's system, never mind going forward into the 21st century, this is absolutely insupportable. I would argue one of the pillars of instability, the second one I mentioned, was geopolitics. Now this is particularly true, of course, with oil. Two thirds of the world's proven reserves of conventional oil, you know, the cheap and easy stuff that you dig in the ground and it comes up, is found in the Middle East. In fact, it's found in five countries. Saudi Arabia has about a 25% share and each of its four neighbors has about a 10% share. Kuwait, UAE, Iran and Iraq. That 2/3 share of the world's cheapest and easiest oil is going to create tremendous geopolitical problems in the future for a couple of reasons. First of all, every forecast that looks at the oil market, whether it's Department of Energy or other official forecasters, says on business as usual, meaning we do nothing different than we're doing today. The share that OPEC has is going to be dramatically larger in 10 and especially 20 years. That's because the non OPEC areas like the North Sea, the Gulf of Mexico, Alaska are in rapid decline. That just means there's even more concentration of reserves. And that means the cartel is going to get much more powerful, particularly the Saudis, who have almost 100 years worth of reserves left. That's a risk to the global economy. More importantly, when you see China rising as an economy as it is, it's become a, after 5,000 years as an energy independent country, just in the last 10 years, it's become one of the world's biggest importers of oil. One of the main reasons oil prices have gone up from $10 a barrel in 1999 to almost 100 bucks today. One of the main drivers was China arriving unexpectedly in a very large way on the world markets buying up oil. And the Chinese are very insecure about their energy imports. Why? They know the extra barrels have to come from the Persian Gulf. That's where the oil is. They know their growth trajectory. They're going to need a lot of oil coming in the next decade or two. And they also know that if there's ever any kind of conflict with the United States over the next 20 to 30 years, and you know, reasonable people who are not war mongers could probably agree that these are the two great superpowers of the first half of this new century. There may be a conflict over Taiwan, over some other regional issue. The Chinese military knows the United States can cut off its supplies of oil. China does not have a blue water navy that can defend its oil reserves or supplies of oil from the Persian Gulf. And this is motivating a lot of thinking in China. That explains one reason why in the last five years you've seen China and companies like PetroChina, one of the government run companies which just listed on the stock markets for a trillion dollars, you would have seen the headlines, double the nominal market cap of ExxonMobil. Well, they've been buying assets anywhere and everywhere. Kazakhstan, Ecuador, Venezuela, the heavy oils or tar sands in Canada. You can't swing a cat without finding a Chinese government oil company trying to buy oil assets in the Sudan, China's holdings there and the oily relationship with the government there. That's one of the reasons the world isn't acting to stop the genocide in Darfur, because of the particularities of the politics of oil. They're trying to build pipelines to Russia to get Siberian oil. They even tried to buy Unical a couple of years ago, a big, not even a big, a mid sized gas company from California. They tried to buy it on the open market, but we stopped them. You might remember in the headlines there was a very ugly kind of xenophobic backlash saying it's a huge threat to American national security to let a Chinese company buy at market prices Unocal. It was completely bogus. I mean there's no. The oil and gas are fungible commodities. Ownership actually doesn't matter very much to anything like energy security. But more importantly, when we took the decision de facto to scare off China from buying oil and gas assets on the open market, the message we told them was go use other means other than through the open market and transparent approaches. And so that's the lesson that the Chinese have taken away. And if you look in the next 20 years, when China comes to acquire oil and gas assets in the Middle east, because that's where a lot of them are, they have three advantages that the US doesn't that could lead to geopolitical conflict. First, the Chinese are never going to lecture anyone about human rights and democracy like we like to do. That makes them welcome in parts of the world where they're, let's just say, cozy regimes. Second, they have no great love for Israel. And as you know, US policy in the Middle east is partly dictated by our allegiance to Israel. That makes them more welcome in a lot of Muslim countries. The final point is China has shared sensitive missile technology with countries that the US considers rogue states. Again, another potential flashpoint. I say all this because, particularly with oil, this is a huge problem and one that's going to get worse before and certainly no reason to think it's going to get better. That's the second pillar of instability. The third, the environmental aspect. We all know about pollution from the tailpipes. You know, a lot of you probably bike to work, you know, going behind a diesel bus or something. It's a, it's a filthy local nuisance. Louisiana suffered through smog before they began to crack it. In the 70s, London, as late as 1952, which is pretty modern times, had an episode of what's called the London Fog. That's not just a cheap brand of raincoats. And it was actually atmospheric conditions combining with the soot and pollution from coal fires. Most English people in London had fires made of coal in their homes that created so much pollution that it led to the premature death of 10,000 people in one week in London. It's one of the worst episodes of air pollution deaths in Western history. Well, we understand that China is going through that phase of development now. Incredibly high levels of pollution. For those of you that have been to China, you know what I'm talking about. Global warming, of course, is the longer term threat, I argue is one of the great mega trends of this new century that's going to affect investments in lots of areas. Inevitable byproduct of burning fossil fuels in a dirty or inefficient way. But that's not all. These are the parts of the energy picture that we know about. What I argue is that if you look at the bigger picture, the linkage between energy and environment is even bigger than this pollution question. A lot of questions that we don't even think about as energy issues are actually related to it. For example, how many of you have heard the idea that water is going to be the next great world crisis. The world's running out of water, or there may be wars over water. It's kind of in the news a lot. When I look at this sort of headline, I'm a little bit perplexed, maybe because I'm an MIT engineer and I see problems, I tend to look for solutions. I say, look, water, we can solve this problem. The Earth is covered in water. It's missing the wrong place, it's salty, fine, we can desalinate. This is not a problem that's beyond the genius of mankind. I mean, some of my old classmates from MIT are working on HIV vaccines. A friend at Rockefeller University, she tells me that this is a really hard problem and it might take 20 years before we get there. And in her quiet moment, she says, you know, I think we may not even get there. It's a very, very complicated scientific problem. With water. The question is political will, and we can solve the water problem with adequate resources and adequate political will. It's not a question of basic science or technology. And that's not to downplay the problem, but just to put it in perspective. But if we solve it, for example, like many Mediterranean countries, like the Middle east is already doing by building desalinization plants, well, those things use enormous amounts of energy. And if you use dirty energy to desalinate, all you're doing is shuffling an environmental problem from one part of the ledger to another. You're not really solving the problem. Whereas if you had access to clean, cheap, distributed energy, then you could solve the water crisis. Not only that, you could tackle waste issues like recycling, dealing with chemical waste, you know, toxic waste issues. You could deal with a lot of things we don't think about as energy issues, but which require enormous amount of energy. And that's why I say, you know, what's called sustainable development, dealing with environment as well as economic growth in a paradigm that is compatible, harmonious. Well, without getting energy right, we have no hope in hell of solving many of these other problems. Whereas if we solve the energy problem, or at least make a big progress, put a big dent in it, it will help us tremendously. And a lot of other things that we don't really associate with energy today. Now this sounds like today, maybe here at Google and maybe in California, most people would agree with my assessment of the problems. But I have run across in my job at the Economist over the last 10 years, I've covered energy and environment for the Economist. People who didn't agree and one of them was Lee Raymond, the chairman of Exxon for over a decade. Some of you may know he recently retired with a $400 million pay package after having led Exxon to becoming the world's biggest oil major and most profitable and financially successful oil major in history. He didn't like journalists very much during his time. He was quite an irascible guy. But he gave me a morning on his calendar some years back. And I mention this because he was a guy who led the fight against everything that I've argued. The idea that there's a fundamental crossroads in energy, the idea that the geopolitics of oil are a pillar of instability, and especially the idea that climate change and related environmental issues argue for us to move off of oil. And not only did he argue this and use his lobbying power in Washington, but he personally believed it with a great conviction. And I found out because when he gave me an agenda on his sort of a couple hours on his calendar. I went to Irving, Texas, the headquarters of Exxon Mobil, in the early part of this decade. I was doing a special report for the Economist on energy that became the basis of my first book, Power to the People. That was the week that the Kyoto treaty at the UN was on the cusp of falling apart. I had been in Amsterdam where the treaty kind of began to fall apart, and I argued that week. I wrote a lengthy cover story in the Economist saying, look, there are critics on both sides of this. Here's what the science says. I spent a year going through all of the latest science and bear in mind, this is back in 2000, and I changed the Economist's position on climate change. We were kind of armchair skeptics through the 1990s saying sort of, well, it's a bit of a problem, but let's wait and see. It might cost a lot and kind of, you know, keep a watching brief, as we like to put it. I came in, in the job as a new correspondent on energy and read the best science, talked to the leading scientists, read the UNIPCC reports, and I argued that, in fact, though there will always be uncertainty on the question of climate science, it's the nature of such a complex system that there will always be uncertainties. That is no reason for inaction, that we know more than enough now to define certain things. Among other things, that the climate is changing. There are potential triggers for irreversible changes. These might have very unpleasant consequences for mankind. Maybe not for the Earth, but for mankind. The way that we live along coastlines and the way that we've organized ourselves in cities and most importantly, that whatever the balance of contribution from natural factors and man made factors, we're very unlikely to persuade the earth to change its radiation pattern. On the other hand, the only lever we have over the climate system is our own emissions. And so if only as an insurance policy, it makes sense to start doing the simple things, the low hanging fruit first, meaning efficiency, starting investments in technology, R and D, to be ready to step up faster if need be. And of course, and ultimately thinking of it as an insurance policy. If you live in an area where you have reason to believe might be in a wildfire zone, it's probably prudent to invest in a little fire insurance, maybe keep a bucket of sand and fire extinguishers around even if your house doesn't burn down. The insurance wasn't wasted. And so I thought this was actually a very pragmatic argument that said this is a real problem. And I argued in an editorial, the UN Kyoto treaty is flawed but fundamentally sound. That is, it was the right way to think about the problem. It's global and this is the most global of all problems. You know, ultimately the atmosphere doesn't care if the emissions come from Boston or Bogotao or Brasilia. So we need a global treaty that envisions global participation over time. And the second thing is it's one that learns as years go on, as the science improves, so that we either tighten or loosen the belt. That's exactly what the science process, the IPCC which shared the Nobel Prize with Al Gore, that's what that process is. The best scientists updating the science as the latest scientific research warrants. And that's exactly the right way to think about a long term problem where CO2 stays up in the air for 100 years. We've never dealt with a problem like this, where politicians have to make decisions on behalf of voters who aren't even born yet. So this is the right kind of robust framework. But the targets and timetables were politically derived. They didn't make any sense. And that was the problem. But we could fix that. The framework was right. Fix Kyoto, don't scrap it was my argument. I got more hate mail that week than anywhere anytime in my history. Fifteen years at the Economist from European environmental groups because they thought, because I dared to criticize their sacred cow, the Kyoto treaty. I was derided as a right wing oil, you know, a guy who was sort of a right wing nutcase. And in the back pocket of the Texan oil lobby was how friends of the Earth described my article. Well, I flew to Irving, Texas. The next day I met with Lee Raymond and I knew I was in trouble because he had that copy of the Economist holding it up. When I walked in his office, he didn't even shake my hand. He had a snarl on his face. For the next 20 minutes he went through my article line by line, footnote by footnote, basically berating me for being what he called a Euro socialist loony. And he went through the scientific piece, accused me of naivete, reliance on faulty science being just all around boob. Now, I took careful notes, B o o B. But when he was done, of course I went right back at him and I gave him my rebuttals. I explained my sources, the peer reviewed scientific literature in Science, Nature, Proceedings of the National Academies, in fact the leading scientific body of our country, National Academy of Sciences, Britain's meteorological office, the UN's IPCC. All of the work that I cited was not from Greenpeace press conferences, but was from the scientific literature in peer reviewed journals. His answer? Those are government scientists. You can't believe what they say. They have a vested interest to keep this hoax going because they want the funding to keep going. Now maybe I crossed the line of journalistic neutrality here, so forgive me, but I couldn't help but respond, what should I do, Mr. Raymond? Only rely on the climate science funded by oil companies like yours? You should have seen the other Exxon executives. I don't think challengingly Raymond is company policy. In fact, I found out because he gave me one other interview just a couple of years ago, just before he retired. And halfway through that second interview, he chucked me out of his office for being impertinent. But when I walked in for that second interview, the first thing he said was sort of jabbed his finger into my chest and said, you should know that everyone at Exxon works for the general good. And I'm the general of the general good. You can quote me on that. And so I did. I did a full page profile of Lee Raymond, the general of the general good and the Economist explaining his views. But on that day when I was there talking about his views on very unusual views on climate change, and I gave him my very snippy retort. I was surprised because he turned to me and he said, you know what Vijay, you're right. If you take out the government money and you take out the oil company money, you don't have any climate science left at all. And so we laughed and we agreed to disagree on climate Science. We went on to have a very productive discussion about the future of energy as he saw it. And his view was that everything I've just argued is fundamentally wrong, misguided, un American. His view is that and that of many people, not only at Exxon, but in related industries, that fundamentally America's competitive advantage is based on access to cheap gasoline, cheap meaning at market prices. That fundamentally dealing with climate change, which they're very skeptical about, will result in high energy prices and give competitive advantage to Europe developing countries over America. And that this is something that's a folly that will be geopolitically disadvantageous for us, that the current system, which includes the long arm of US Foreign policy, has served America very well and should be sustained as a basis of our advantage in the future. I said, well, you know, what about talk about renewables, hydrogen energy? I mean, President Bush had just given a State of the Union speech where he talked up the role for biofuels and hydrogen. And Tony Blair had committed Britain to a low carbon economy, reducing greenhouse gases by 80%. Where it was. He said, they don't know what the hell they're talking about. I said, okay, well, they're politicians, you're right. They may not know. But his rivals, the chairman of Shell and bp, had set up new renewables divisions. They were investing in wind, solar. BP is at the time already the number two solar company in the world. They've set up various other divisions to do carbon sequestration projects. He said, show me the money. And here he had a point. Despite all the splashy advertisements claiming to be beyond petroleum, if you actually look at the money that Shell and BP spend on green projects, even if it's come up to maybe a billion dollars a year, which is a lot of money for environmental causes, you ask, how much are you spending on oil and gas? Turns out these companies are spending between 10 and $15 billion a year each on upstream, what's called E and P exploration production. I mean, that's their bread and butter. And when I've challenged their CEOs on this, they say, yeah, for the next 15 to 20 years, we're going to be oil companies. Now, of course, we're taking on investments in renewables as a hedging bet. But let's not forget. And Lee Raymond's point was, follow the money. This is more for show, or it's not really a game changer. They just keep dipping their toes in the water, take it with a dour dose of skepticism. So I walked away from that meeting aware that these Arguments are going to be met with skepticism and quite a lot of uphill battles. I'm pleased to say that, you know, Lee Raymond has come and gone with his very large package, but the world has actually moved in the direction of acknowledging that the energy system has a problem. That fundamentally, whether we look at the pillar of energy and poverty, which I think is getting a little more attention now, energy and environment, which is, you can't escape it in the news, and increasingly energy and geopolitics, with the Iraq war, I think we're beginning to appreciate some of the consequences. We're going to see a world at a crossroads. I don't want you to think I'm a pessimist, though. I've given you three reasons why that are actually reasons for concern, but it's mainly because I wanted to convey that I think the problems are real. But the nub of my argument, what led the New Yorker that reviewed my book a couple of weeks ago to accuse me to point a finger, a wag at it and say he's an optimist and say it as though it was a bad thing, is because I actually think that there's more hope today in the energy world to fix this, to fix the problems than there has been for many decades for three reasons. There are three mega trends that give me hope, and I'll just be brief about them because I want to get to your questions. The first one is that the last two decades we've seen a move towards liberalizing energy markets, and this matters now. Bear in mind, energy is an industry that's been dominated by cartels like OPEC or the big oil oligopolies in electricity. We've had lack of competition around the world. Energy has been deemed too important to national security to allow proper, vigorous competition of the sort that we have in Western many other industries. I think that the move in the last 20 years towards more competition and liberalized markets is a good thing. You might say, well, you're a guy from the Economist, of course you're going to say free markets are good. The answer is, sure, that's true. I do think the competitive markets are better than the alternative. In the long run, they lead to more efficient outcomes. But that's not why I call this a megatrend. The reason it matters for the topic we're talking about today is liberalizing markets is the essential enabler of innovation in an industry that is the least innovative big business on earth. Now, I just made a very big statement, so let me give you a statistic to Back it up. Electricity, which is a big chunk of the energy pie. For example, take the US electricity industry. It's a colossus, right? And it's an amazing feat of engineering. The National Academy of Engineering voted grid electrification as the number one accomplishment of the 20th century. Not television or the Internet or even Google. But it was grid electric because without electricity, what could we do, right? We couldn't have done any of the other things. And so I don't want to take away from it, but the way we regulated the industry has resulted in such disincentives for innovation that the industry reinvests less than 1/2 of 1% of its turnover back into R and D. And that figure has been true for three decades. And I'm not making that number up. That's from the right up the road, the Electric Power Research Institute in Palo Alto. That's the industry's own figures for investments in innovation. And you guys know this, in any vaguely innovative industry, you'd have 5, 10% of turnover into R and D. If you're a startup, if you're in biotech, if you're in high tech, maybe as much as 20%, 1/2 of 1% for 30 years. No wonder we have an electricity system that's made up of these clunkers, these old coal plants. More than 55% of America's electricity comes from coal plants that are old fashioned, pulverized coal plants. Incredibly filthy, very inefficient, running it below 35% efficiency on average. And they're over 30 years old on average. There's no capital stock turnover. I mean, we're not even talking about 1980s technologies, right? We're talking really old time and a command and control paradigm, a centralized grid paradigm rather than more distributed nodes or what I call micropower, smart clean co generation. We have a lot of technologies that could make for a smart grid. This industry hasn't implemented these technologies because the incentives haven't been there. Liberalizing markets allows the two guys who left Stanford to found your company, or the two guys in a garage that created Hewlett Packard and transformed the computing industry. Well, I want them working in clean energy, facing the opportunity to earn rewards in the marketplace. And that's what we're beginning to see. And I'm happy to see that it's a powerful trend. The second is a new kind of environmentalism, what I call a market based environmentalism. Much more bottom up, global. If you look at everywhere I go, Beijing or Brasilia or Boston, environmentalists don't think in the Old fashioned left versus right paradigm quite so much anymore. Business is the enemy. That's the old fashioned way of thinking about it. Back in the 70s, the US environmental laws, the Clean Water, Clean Air act, were established by groups like nrdc, one of the country's big environmental groups. One of the founders of that outfit tells me that, you know, their motto has been mandate, regulate and litigate. Sue the pants off them because you can't trust the bastards. Right? That's the approach that American environmentalists have taken, is to sue and to see that, you know, markets are the enemy. In fact, what you're finding is that that worked. Of course the air is a lot cleaner than it was. But getting the first 50% of a pollutant out of the air or water can often be cheaper than getting the last 5% out. The marginal cost can be much higher when you get to the last bits of pollutant. And in countries like the U.S. that's what we're working at. It's not a filthy country like we were in 1970 when the Cuyahoga river spontaneously burst into flames because it was so filthy with industrial pollution. So we need more sophisticated tools and that's what we're getting. We're using, you know, for example, trading. Some of you may be familiar with the acid rain trading program. It's a cap and trade system. Sulfur dioxide is the pollution that is a precursor to acid rain. When it was proposed in the early 90s that we should try to solve the acid rain problem using a trading system, giving companies permits and letting them trade if they were able to make cuts deeper than their permit, environmentalists said this is evil. This is trading, the right to pollute. This is fundamentally, and you still hear this in some quarters, what happened. The industry said it's going to bankrupt us. We don't want to do anything. Well, we did it anyway. We solved the acid drain problem at a fraction of the cost that was forecast five years ahead of time. Markets work. And once one distinguishes crony capitalism from market efficiencies, I think you can actually make progress. A lot of environmentalists now see market based instruments as one tool in their toolkit. It might be trading instruments in Europe, they like taxes, but you know, eco taxation, carbon taxes, other kinds of externalities, taxation that's consistent with a market framework because it doesn't pick a specific technology, it doesn't tell you corn ethanol is good and we're going to give a lot of money to it because farmers are very politically powerful. Well, that's not a market Based approach. On the other hand, a carbon tax that taxes the carbon content of fuels so that finally clean energy has a chance to compete in the marketplace. You guys can see I'm not running for office anywhere. I'm talking about taxes, right? But until we fix energy prices, meaning until we have a level playing field that accounts for the harm that dirty energy does through something like an economy wide carbon tax, we're never going to have a chance for clean energy to take off. Well, in Europe, we have 20 years of experience of it working very successfully. So that's why I say that's the second reason. The third reason, I won't belabor it, because you guys are here actually doing it, is that we're innovation. We're living in an extraordinary moment of technological innovation. A confluence of software, hardware, advanced material science, lightweight composites for cars, lithium ion technologies for batteries. And in an age where innovation has exploded and gone global, where fundamentally ideas from anywhere, as your global campus network shows, can influence markets everywhere, not just in the ghettos where we used to have, you know, whether it's Xerox PARC or Bell Labs, you know, the old fashioned ivory tower way of doing innovation is fading away and we're having a much more bottom up, organic, open innovation process. And that's leading to what I would call is the new golden age of energy and environmental innovation. Harkening back to that age of Tesla, Edison and Henry Ford. That's where we are. That's my reason for optimism. And he put it all together. The problems are obviously real, but the megatrends, I think are real too. And so when you go to answer Mahatma Gandhi, as one must, you know, how many planets, when China and India are spewing out this kind of pollution and people are wondering about how many cars are going to. We're heading towards a world of a billion cars within a few years. Well, the only answer we can give Gandhi is we have only one planet. We have to find a way to reconcile the legitimate aspirations of people in developing countries to improve their lives through economic growth with the equally legitimate concerns in developed countries about preserving the environment, tackling climate change for our children and grandchildren, you know, sustaining sustainability. The only way we can do that is if we start tapping that one natural resource that we still have in infinite quantity. And that's human ingenuity. Thanks very much. I'm delighted to take your questions unless I put you all to sleep. My question is that in your opinion, what sorts of policies do you think would help us stimulate innovation in the energy sector? I think that there is no shortage of intellectual capital, there's no shortage of financial capital. And you know, within a few miles of this very spot is the world's center for venture capital. Right. What's wrong with energy? What we haven't seen, the kind of outpouring of investment that we've seen in ICT and other areas biotech is. The playing field has not been level and the specific proposals and my book gets into, into detail on what I propose, including sort of a five point agenda for the next president in Congress and that sort of thing with policy details. But in a nutshell, without a level playing field, it doesn't matter how much initiative goes into the game. The powers of incumbency, of big oil, of big autos are so great, the legacy assets, I mean we're talking hundreds of billions of dollars of invested infrastructure on the ground that's ubiquitous. It's very, very, very difficult to go up against it when you also have a Washington playing field that's rigged in favor of dirty energy. So what I argue is the way to unrig it is to abolish all subsidies for everything. And this is a mistake that environmental groups make that the renewable energy lobby often makes. They go to Washington and they say we want a solar subsidy or we want a wind credit or we want some money for energy efficiency or give us a little scrap for hydrogen or vehicle to grid or you know, let's have you guys know, all of these technologies, all of them subsist to some manner or another with some kind of subsidy. But what the lesson of Washington, look at the 2005 energy bill. This was the most important energy legislation in 20 years. But it was such an obscene act of pork barrel giveaways that Senator John McCain called it the leave no lobbyist behind bill. Even by the standards of Washington, it was awful. $80 billion in pork were given away to all manner of industries in energy. And the solar lobby walked away with its bits, the wind got its credits, the hydrogen guys got a little bit. And I was so upset because what these guys did is they got the crumbs off the table. When you look at the analysis that's been done of that 80 billion, almost $50 billion went to oil and gas and another chunk went to the nuclear industry. Those are established industries that don't deserve a penny of subsidy. They're well capitalized, they have access to capital markets. There's no reason to subsidize the oil and gas industry. It's obscene. But their lobbyists are very powerful. They Play the card that, you know, America needs energy independence. We should drill in the Rockies because it keeps us off of Saudi oil. Baloney. You know, America will never be energy independent. We have less than 3% of of the world's proven reserves of oil. Every day we consume almost half the world's gasoline. What the heck are we talking about? Energy independence. This is subsidizing expensive oil that the market wouldn't produce. Right, the elite capture process. But there were the Sierra Club and the wind lobby presenting a fig leaf by getting their small scraps off the table. That's why I say fundamentally, by going into Washington trying to play the same game, you actually allow a much more shameful game to be played. Far better to denounce these subsidies. Ask for a level playing field, including the politically painful. Talk about getting in something like an externality's tax. You can call it something else, call it a banana, you know, a carbon banana instead of a carbon tax, if you don't like the word tax and make it revenue neutral. That's what I argue is, you know, the next president in Congress can actually say, in the interest of dealing with our problem with the Middle east and oil and geopolitics, dealing with global warming, local pollution, the health of our children, you can imagine all the reasons why dirty fuels are a problem for America. Whether you're on the left or the right. I'm going to give every American household a refund check starting next month. Now everybody likes the sound of that, right? Who doesn't like a refund check? I'll take it and say, ah, but there's a catch. As a 20 year bipartisan plan that we've agreed with the new Congress, gasoline prices are going to go up a nickel a gallon every month for the next 20 years and it's going to be part of a comprehensive economy wide carbon tax. Now you might say, well, what's the point of that? You're taking with one hand and giving back with the other. It's not going to do any good. Of course. The point is it becomes revenue neutral. If you're a household, you get your money back. In a sense. Nobody can accuse this of being a big government plan. Why? The government's not keeping the money, you're getting the money back. But by taxing dirty energy in the marketplace, showing to the marketplace, meaning individuals, industries, investors, the direction of change in a reliable 20 year basis, long term bipartisan basis, suddenly clean energy gets the biggest boost that you could imagine. Why? Because the guys, the VC boys down the road, they're going to say, you know what we can see, we can put this in the bank. Whereas oil prices, they go up, they go down. You don't know, you can't take that to the bank. Whereas this is a predictable indicator that dirty energy will be paying more money over time, the dirtier it is. The carbon tax would hit harder. It would hit coal harder than gasoline, for example. And you might say, well, a nickel, that's not very much. Well, it's meant to start slowly so that people don't howl in pain, but the signal is clear. So a husband and wife might say, you know, honey, why don't we buy a slightly smaller SUV next time? Or maybe you look at this sort of hybrid thing that people are talking about. GM might say, you know, we kind of blew it in the 90s by making all those Hummers. But why don't we step up our investments in flex fuel and that Chevy Volt program with plug in hybrids, why don't we bring them out a little faster? Because we can see what direction prices are going. We have stability of public policy. That's why I say, you know, this is how you fundamentally change the incentives facing individuals, investors and industry. Everything else is nibbling at the margins, giving subsidies for this or that. It'll never win. History shows it's a fiasco.

Hi, thank you for coming to Google.

Sure.

Which of the current slate of presidential candidates actually get this with the message that you're talking about what the next presidential, next president need to do, who gets it?

You know, the short answer is none of them has announced a policy that is as ambitious as anything that I'm proposing. But I'm very pleasantly surprised that candidates on both sides of the aisle are all of them among the leading candidates, let's say the top three on each side, all of them are planning to do much more than the Bush administration has done. That doesn't say much, but all of them support. For example, I think the single biggest game changer is going to be mandatory action on carbon, on global warming. Why? Because if there's a federal, again, California, you guys will know. And Google has played an important role in this, has motivated action at the state level and that's great, but it's not enough. The energy economy doesn't work like the healthcare economy or schools. Wisconsin was able to show. And Minnesota with health care, Wisconsin with education reforms at the state level that could be copied elsewhere. Right, that's great. Well, the problem with energy is electrons don't stop at the border. Right. And California can try to extend extraterritorial reach. But at the end of the day, cars are a national market, electricity trades across states. So we need meaningful federal action that Bush administration has been very hostile to. And I think they probably won't do it until they leave. Even the Republican candidates support it. Republican governors, in fact, not just Schwarzenegger but Romney when he was at Massachusetts Pataki in my home state of New York, these were the guys who led the climate change revolution at the level of the states against the wish of their own president. And so I think that that's going to be the single biggest game changer. I predict it will come within three years regardless of who wins.

Vijay, we are known in Google to build large data centers that consume lots and lots of energy. What's your opinion? In the future these centers will grow to humongous size, consuming as much as maybe hundreds of megawatts of electricity. Is there going to be a sharp shift of public opinion scapegoating the companies that build server farms as opposed to say car manufacturers or inefficient military that consumes number of gallons per mile launching the Hercules flight for instance?

Sure, the energy consumption. I think efficiency is a must in every industry. But simply because server farm uses energy or a lot of energy, it doesn't tell me anything about the utility of it, right? If it is the backbone of the 21st century digital economy, all the things that it makes possible, the avoided trips to the store because I now buy from Amazon.com or something. So you have to look at both sides of the ledger, right? So there's the life cycle analysis you can look at about the net contribution. I've looked at lots and lots of studies on whether the Internet is on balance worse for the energy economy or better. And there was a line promoted in Forbes magazine a couple years ago saying, you know, this is all just basically a coal fired Internet that's been roundly debunked by Lawrence Berkeley Labs and the energy experts at the UC system. On balance it's broadly a very good thing. But I would make extra efforts if you what you asked. You also asked about public perception. Invest in energy efficiency. If you can do on site co generation of renewables to power your server farms, all the better. You know, the greener you can make your electricity inputs, the more benign for the planet. But also from the PR perspective you can show that you're a leader helping buy down the cost of renewable energy. So people can even those who feel a little guilty about the server energy will say okay, we trust these guys that they're going to be best in class in doing what's right for the environment. I think that, you know, your company's done a pretty good job with that, with what google.org is doing in environmental issues. Yeah, let's go back to cars a little bit. Where do you place your bet on large scale fuel for cars? So I'm not talking about small scale production like up today, but if we, if we're talking about millions of cars, what's your bet on, on the alternative fuel? I think that there's a multiplicity of fuels that are coming on the marketplace. The broad categories you'll be very familiar with. Biofuels. The long term game there is cellulosic ethanol. But you know, let's see if that really comes to market as quickly as my good friend Vinod Khosla and others argue. I'd love to see it, but you know, it's an open question. We have of course electricity which depending on the carbon content of the grid can be not so great or it can be very, very good as a fuel. We have hydrogen, which is I think a longer term play. I think the car that you and I drive around, personal car made using hydrogen fuel cells will probably be the last of the options we're talking about. But I wouldn't rule it out either. Just today Honda's announced that they're leasing for $600 a month. You can lease normal people, not specially selected, you know, celebrities or anything can lease a Honda fuel cell car. Coming with a home electrolyzer, you can electrolyze hydrogen at home. So starting next year. So it's not fantasy, people are working on it. Companies have spent billions of dollars on it. But there is a chicken and egg problem of fuel infrastructure. How green is your hydrogen? The conversion efficiencies, you guys probably know some of these issues. So I would say it's on the cards but not the first. But there's another fuel that's often forgotten and it's the most important one, that's efficiency. When you displace use of gasoline, you can call it efficiency, you can call it something else. That to me is the best fuel of all. The energy not used is the cleanest, cheapest and often the first energy we should use. That's the low hanging fruit. And that's in a way what the Toyota Prius does and other hybrid electric drives. They just use a little bit less gasoline than they would otherwise to give you the benefits of going a certain amount of distance in that car. And I think all of those will compete in the marketplace. The more powerful the price signal, the sooner they will all come to market against gasoline. I personally am delighted to be technology neutral. I think this is the problem with why we've gotten into trouble in the US and elsewhere by betting on one technology or another through public policy or through subsidies. You know, I take the view that I want people in the marketplace to make bets. That's the role of capitalism, that innovators should make bets and you know what? Let them go bust, that's okay. But as a society we shouldn't do this because that's ridiculous. You get captured by elites. So my argument, it's going to be unsatisfying to you. So I'm not going to tell you which is the silver bullet. I personally don't think any of them is big enough and scalable enough in a short enough time frame to take on the oil enterprise. I think we will probably need all of them in some combination. And the way I think it's likely to play out, different parts of the world and different parts of the states that have different natural endowments. You know, if you look at the Midwest to the US if you look at Brazil, you have easy access to biofuels, you're probably going to see a pathway towards cellulosic ethanol. That's great. If you see the Pacific Northwest or you look at France, where they have a lot of hydro in Seattle, you have a lot of nuclear in France, middle of the night, electricity is basically free. I mean, they're giving it away because they have excess capacity. It might make sense to electrolyze water and make hydrogen, run a fuel cell. I understand it's not the most efficient way, but if you look at it from the economic perspective, that's electricity that they're giving away. I think that's probably going to take off in those places. And so I say there'll be different solutions in different parts. And electricity, of course, will often make sense, especially if it's done in a flex fuel fashion. I think that's the key enabling technology. The Chapter 8 of the book is actually called the Juice and the Jalopy because we've fixated on the juice, meaning the fuel. Now is it ethanol? Tell me, is it going to be ethanol? Is it going to be electricity? And my argument is the real change is the jalopy. The car itself is the enabling technology. And the fact that the car is becoming electrified, that, you know, 30 years ago, only about 5% of the value of a car came from the electronics and they were standalone systems, they weren't integrated. Since then we got airbags and some anti lock brakes and so on and tush warmers. But today we have something like 20% of the value of a new car. A new BMW has something like 30 separate computer systems, interconnected networks really. I was driving a hydrogen 7, it's called the BMW Flexible Fuel 7 series, on the Autobahn three months ago and it was amazing. And you're driving at 80 miles an hour, you press a button, it switches to burning hydrogen instead of gasoline. But even cooler, it can sync with my iPhone and through voice command, download Google Maps. I thought this is suddenly a cool electronic accessory. The car has got a lot of smarts in it and networks in it. And within 10 years we're going to be 50% of the value of a car is going to be in the software, the electronics, the command and control systems, the stuff that you guys work on, rather than the stuff that I learned at mit, which is mechanical engineering. So I studied the tools of Henry Ford. You guys are studying the stuff that's really going to be the key to innovation. Once you see a smart computer on board or set of computers, networks, it makes flexible fuel cars almost a trivial task. And once you have flexibility, you immediately solve the problem that's bedeviled every alternative fuel. That is the chicken and egg problem. Where do I get my ethanol? Where's the hydrogen? There's no hydrogen pump. And then nobody buys your car, right? And so you get over the chicken and egg problem by having a small gasoline engine and, and a tank that you might only fill once a month or once in a few months. Most of the time you ride on the alternative fuel, let's say it's electricity, you get a plug in. I don't know, one night you got to sleep over at your girlfriend's house. She's in a condo. You can't plug in the car. When are you going to go back home? You're like, no, no, no, it's ok. The next morning you can use the gasoline engine and then the following evening you plug in. Suddenly it fits in with your lifestyle, suddenly gives the alternative fuel a chance. It's almost a trivial idea. Why didn't we think of it before? But you needed a lot of stuff to happen on board the car for this to work seamlessly. And that's where to their credit, Toyota and Honda with them have accomplished a tremendous advance.

We have time for one more question.

One more question. Seems like you are saying that there will be a second industrial revolution. Just to sort of take it, talk about Tesla and those guys. The first industrial revolution happened mainly in Europe and most of the inventions happened in Europe for their benefit. It seems like the second industrial revolution in energy would be mainly for the benefit of people in India and China where their expectations are still not met yet. So do you think some of those innovations will actually come from those countries?

I think it's an absolutely essential question. You're quite right that a lot of the benefit will come in the developing world because again, those 1.6 billion people who have no modern energy, we have to find ways of helping them. And you know what, it's happening. I'm not talking about a charity mindset where you just give money which has been proved to be debunked over the last 30 years. If you look at an Indian entrepreneur like Selco, solar energy entrepreneur, they use a microenterprise model. Most of the people who don't have electricity in developing countries today are better and more economically reached by off grid solutions that have nothing to do with the state monopoly, that have to do with innovative micropower solutions, often with local capacity building micro enterprise solutions. We have pretty good lessons on how to do this from the cell phone analogy, how African villages leapfrogged ahead to cell phones without landlines. But just to modify the point a little bit, if we develop cleaner technologies or if developing countries come up with clean technologies and leapfrog to that, the rich world will benefit too because climate change is going to affect all of us. So that's just a small point, the bigger point about where these innovations will come from. If you look today, China manufactures and uses more compact fluorescent bulbs than any other country on earth. It's already a world leader in wind and solar, as is India. Indian wind companies are going and buying European wind companies. They're becoming global in nature. If you look at lithium ion batteries or other related battery technologies. The Chinese continued to study material science, battery chemistry, electrochemistry over the last few decades when Europeans and Americans took their eye off the ball. I worked in a material science lab at MIT during my years there on a research project and half the grad students were Chinese even back then. And so China is the world's leader in a lot of these technologies. It's no surprise that the Toyota Prius, there's a new factory building, Prius is in China. I'll give them two years before they figure out how to copy it and come up with their own. Right. And India of course with software, with the Tata Mobile or the Tata 1 lakh car, as it's called. New business models. As much as new technologies are coming from the developing world, and that's important because it's not just about high tech. Of course, Japan and the US and Europe may still have an edge on cutting edge technology, but the size of these domestic markets forces companies to think about new business models, new ways of connecting the dots, often using appropriate technology. Not necessarily rocket science, but finding ways to monetize it, creating value for local consumers in ways that you might not think sitting here in Silicon Valley or Europeans might not sitting in Germany. That's, I think, where the cutting edge of innovation is going to be. We're already seeing it in lots of examples coming up. And when you look ahead, because these countries don't have the legacy assets that we do in energy, what does that mean? Most of the cars, public transportation systems, roads, power plants that China and India are going to have in 2050 haven't even been built yet. Whereas for the OECD countries, most of the energy systems we're going to have 20, 30 years out from now kind of built out. I mean, there's a gas station every 100 yards. How many more do you want? What does that mean? That means for them, if they could choose to go a different path with hydrogen or with clean fuels or renewables at much lower cost because they don't have to scrap a lot of assets here, it would be a real problem because we got oil companies, politically powerful and with a legitimate financial argument that, hey, we invested in all these things, you told us it's okay, what do you want us to do now? So we have the cost of those stranded assets. So I actually think there's a tremendous potential for the China and India and South Africa and Brazil kind of countries to leapfrog ahead and that we should be learning from them in future. Thank you very much.