01/10/2013 11:57 am ET Updated Mar 12, 2013

The Incontrovertible Business Case for Clean Energy, Part 2

This is the second part of a two-part interview with Hunter Lovins. Hunter, who Newsweek has called "the green business icon", has worked with companies around the world on the economics of energy efficiency and renewable energy. She is a leading expert on the business case for sustainable low-carbon energy.

In Part 1, Hunter addressed the economic benefits companies are harvesting from their investments in energy efficiency and renewable energy.

Q: We most often hear that the corporate sector wants government to get out of its way. But in your dealings with CEOs, have you found any support for federal policies that companies think would help them invest in clean energy? If you could sit down with President Obama, what would you encourage him to do to bring more corporate investment into clean energy?

A. Oh, c'mon, the idea that businesses want government to get gone is another of those myths. Business cannot function in the absence of the rule of law, of a level playing field (however much they may try individually to tilt it to their advantage) and the other services that a competent government delivers. If you want to do business without government, go to Somalia. It's a functional chaocracy. And I guarantee you don't want to try to do business there.

Renewable energy and energy efficiency are already lifting the American economy. By 2007 they had generated over a trillion dollars in sales and created more than nine million jobs. This exceeds the $905 billion in combined 2007 sales of the three largest U.S. corporations, Wal-Mart, ExxonMobil, and GM.

More than 2,000 business leaders who are members of the Pew Clean Energy Business Network agree that the clean energy economy, which delivered jobs two and a half times faster than the rest of the economy between 1998 and 2007, is a vital part of the country's economic landscape, and that we need a national policy to migrate from the dirty energy system we have now to one that protects people, our national security and our climate.

According to estimates by researchers at the University of California at Berkeley, comprehensive clean energy and climate protection legislation could create up to 1.9 million new jobs. The Center for Climate Strategies found that if the federal and state governments took 20 core actions, we'd reduce emissions nationally by 16 to 25 percent below 1990 levels, generate more than 1.2 million jobs in the next seven years, save society $14 trillion by 2030 and add $88 billion to our GDP by that year. Meantime, we'd cut our oil consumption by five billion barrels and our greenhouse gases by 13.5 billion metric tons. If even more aggressive but sensible federal energy policies of the sort outlined in the Presidential Climate Action Project were implemented, clean tech industries could generate more than 37 million jobs in the United States by 2030.

There are two national policies that would be particularly helpful: restoring PACE (Property Assessed Clean Energy) financing and instituting a national CLEAN contract program.

Let's start with PACE. This is a program that allows local governments to put together a pool of money to loan to citizens and small businesses to implement energy efficiency in their homes and offices, and install local, renewable energy. It is one of the biggest potential job generators that we have.

How do I know that? Because it's been done. In Sonoma County in California in 2009, the county put together such a fund. In the first nine months of the program -- right at the peak of the recession -- construction trades in the county went up 8.4 percent. In neighboring Napa County that did not have this financing program, jobs went down 3 percent, as they did for the Bay Area as a whole.

PACE was ready to roll out across the country -- communities everywhere were setting up such financing programs -- and then those paragons of financial rectitude, Fannie Mae and Freddy Mac -- both bankrupt -- said they would redline any jurisdiction that implemented PACE financing. So far, nobody has slapped them down. A congressional effort in 2012 sought to forbid Fannie and Freddie from interfering. This would be an excellent thing for the new Congress to pass. Many jurisdictions are going ahead anyway, clear that this program delivers real jobs and greater security in their neighborhoods. A number of states have passed legislation authorizing PACE financing.

The second policy, Clean Local Energy Accessible Now, is a variant of the legislation that is enabling Germany to transition from dirty energy to its goal of being 100 percent powered by renewable sources, which it should achieve before 2050. The new book Clean Break describes this amazing transformation, and the policy tool that is driving it. Germany is rejecting coal and nuclear and investing in renewable energy, and this clean energy economy is driving its prosperity, leaving it the only country in Europe in a position to bail out the southern European nations.

In 2011, cold, cloudy Germany installed 28 times as much solar as California did that year, despite the fact that California gets 70 percent more sunlight. The Federal German CLEAN contract, there called a feed-in tariff, mandates that the utilities must pay anyone who generates green electricity a fair price for what is produced and do so for 20 years. Germans are installing renewable energy everywhere, much of it owned by the local communities, enhancing their prosperity. Wildpoldsried, Germany, for example, generates 321 percent more energy than the town uses. It sells the excess, earning $5.7 million a year for the community. An increasing number of towns in German are becoming 100 percent renewable and powered by solar, wind, and biofuels.

Deutsche Bank studied the economics of the German feed-in-tariff experience. It found that in the first five years the program delivered 480,000 new jobs. It did raise electricity rates: two to three Euros a month, $50 a year for a total of 8.6 billion Euro more a year. That may sound like a lot, but Deutsche Bank found that had the Germans done nothing -- just kept burning coal -- they would have paid 9.4 billion euro more. Coal costs are going up about 10 percent a year. So, yes, with such good policy you are going to pay more. You will pay less more if you have good policy than if you do not. We ought to try it here.

Q: Small businesses got a lot of attention during last year's presidential campaign. It makes sense. They are the engine of job creation in the United States. The problem is, smaller companies may not have the engineering expertise, or the research capacity, or the capital that larger companies do, to invest in clean energy. Any thoughts about how do solve that problem?

A: Small businesses are half of our economy, 90 percent of the non-governmental employers, and, as you say, the engine of job creation. A Kauffman Foundation study showed that on balance, big companies are net job destroyers. The job creators in our country are the small start-ups. We know from studies in California and across the country that the green economy delivers three times the number of jobs of the traditional economy. And a quarter of these green economy jobs are in manufacturing compared to 9 percent for jobs in the traditional economy.

Yet little has been done to help small businesses achieve the sorts of savings that the big companies are starting to realize are the key to prosperity.

A good first step would be to keep some of the government programs that successfully help small businesses. Among them is SBA's Service Corps of Retired Executives. The SBA should recruit retirees with expertise in clean energy and equip them with a web-based learning tool, Solutions at the Speed of Business, that helps busy entrepreneurs cut their costs. It offers pragmatic measures that save money and enhance brand image. The tool guides users to develop an individual action plan, providing the information, advice and instructions that suit each small business user's unique circumstances and learning style. It enabled a company called Hero Arts, a small manufacturing business in California, to save $45,000 on its heating, ventilating and air conditioning system. Another company, Give Something Back Office Products, used the lighting module to develop a plan to save $7,350 a year retrofitting its lights. The retrofit would cost $6,000, but deliver the owners a 106 percent return on an investment the first year.

The U.S. Department of Energy's Industrial Assessment Center program uses engineering students to conduct energy and pollution analyses for small and medium companies that don't have that capability on their own.

Or, if you prefer business solutions, the managers of large supply chains can insist that their suppliers implement climate protection as a way of cutting their costs and thus the prices that they have to charge. Best case, these big retailers should help pay for these measures, but even putting out the call can make a difference.

One company with whom Natural Capitalism worked, MiRancho Tortilla Factory in San Leandro, Calif., had little interest in becoming green, but it wanted to sell its product to Walmart. The world's largest retailer has not only announced a policy to favor suppliers who can meet its 15 question "Sustainability Scorecard," it's now tying incentives given to its buyers to adherence to the Scorecard. Question number 1: "Do you measure your carbon footprint?" Question 2: "Do you report it to the carbon Disclosure Project?"

To make itself more attractive to Walmart, MiRancho implemented a variety of more sustainable practices, from a lighting retrofit to eliminating waste packaging. Surprise: MiRancho saved $35,000 in electricity that previously ran inefficient lights, while reducing that part of its carbon footprint 63 percent. The company saved another $140,000 by eliminating unnecessary packaging and waste. Altogether it projected savings of $450,000 over the following five years and an emissions reduction equivalent to taking 300 cars off the road.

The Carbon Disclosure Project is now working with companies with large supply chains to help drive such savings throughout the entire economy. Companies like MiRancho that want to increase sales to bigger businesses who are demanding emissions reduction programs of their suppliers are suddenly finding climate protection not only a great way to cut costs, but to drive growth in their companies.

Walmart announced that beginning in 2013, it will use its Sustainability Index to influence the design of its U.S. private brand products, and the products it sells under its own label in its stores. By the end of 2017, Walmart intends to buy 70 percent of the goods it sells only from suppliers who use the Index to evaluate and share the sustainability of their products.

Q: It's clear that energy efficiency and renewable energy are good for business. But are you saying they are always the cheapest choice?

A: No. Once you capture the savings from good housekeeping like turning off unnecessary lights, saving even more energy is an investment, and like all investments, it takes money. Then it's a question of how fast you need your investment paid back.

Many companies say that they can only tolerate a year or a year and a half payback. Or less. That's a 70 percent return on investment! You would not require that of any other investment, and good luck getting it for your 401(k). But companies are afflicted with crippling short-term thinking, driven largely by the Wall Street casino, in which traders insist on getting quarterly reports on profits. Absent good federal policy to make it attractive for a company to make efficiency and renewable energy investments that may take two years or 10 years to pay back, we will see far less of these than good economics would deliver.

This is why Paul Polman, CEO of that little start-up Unilever, told Wall Street that Unilever would not submit quarterly reports. Polman stated:

"The focus on delivering short-term shareholder value has led to widespread addiction to quick artificial highs--rather like a junkie hooked on heroin or a financial trader on cocaine. The ultimate cost of short-termism was the financial crisis of 2008-9...Too many investors have become short-term gamblers: the more fluctuations in share price they can engineer, the better it is for them. It is not good for the companies or for society, but it is influencing the way firms are being run....To drag the world back to sanity, we need to know why we are here. The answer is: for consumers, not shareholders. If we are in synch with consumer needs and the environment in which we operate, and take responsibility for society as well as for our employees, then the shareholder will also be rewarded."

The company's share price fell 10 percent. His answer: Good, that's not the sort of investor we want. He announced Unilever's Sustainable Living Plan: double sales and halve the environmental impact of Unilever's products over the next 10 years, improve the nutritional quality of its food products and link half a million smallholder farmers and small scale distributors in developing countries to its supply chain. Achieving this, he said, will require the sort of longer-term investments that quarterly analysis penalize. As he put it:

"The Occupy Wall Street movement sends out a very clear signal. If you look out five or 10 years... consumers will not give us a sense of legitimacy if they believe the system is unfair or unjust. Companies that miss the standards of acceptable behavior to consumers will be selected out."

Q: According to experts at groups ranging from McKinsey to the American Council for an Energy Efficient Economy, we have vast and largely untapped potential to increase our energy productivity, reduce waste and pollution, save money and in effect create new clean energy supplies. How big is the opportunity?

A: It's big. Matthew Ganser, a former drilling engineer for Royal Dutch Shell, describes it as a huge untapped energy reserve, a "resource play", in the same way we talk about untapped reserves of natural gas. He says our reserves of potential energy resource from buildings alone amount to more than 6,500 trillion Btu's, worth more than $100 billion annually.

Q: So what are our prospects for the future? Are you optimistic we will make the transition to a clean energy economy and reduce our carbon emissions?

A: The question is not whether we will reduce emissions, it's whether we'll do it in time to prevent a permanent weirding of the climate. If we leave it to the market, as imperfect as it is, in due course we will transition away from dirty dangerous fossil fuels, and achieve an economy based on locally available clean energy. There will come a realization in which business and government join together to defeat this crisis.

To accelerate progress, I'd like to see a federal effort to unleash the green economy, perhaps a modern-day variant of the old Atoms for Peace program in which the U.S. and other governments promised to deliver nuclear power to any country that pledged not to use the technology to build bombs. What if the United States, Germany, China, India, maybe Brazil -- the countries now leading in solar manufacturing -- pledged to meet the energy needs of the rest of the world through renewable energy? The panels, wind turbines and such would be manufactured in our countries, creating jobs at home. Use the billions now being spent to make the fossil technologies look cheaper than they really are, use the World Bank's coal expenditures... We'd meet our various development pledges to emerging nations, and by getting the volume production of these technologies up, we'd drop the prices so that the technologies would then sweep the global economy.

Oh, and we'd solve the climate crisis in a way that would lift the world's economy into prosperity.

As President Kennedy said of poverty, we created these problems -- we can solve them.

William Becker is executive director of the Presidential Climate Action Project and a senior associate at Natural Capitalism Solutions, the non-profit think-and-do tank founded by Hunter Lovins.