21st Century Energy Challenges

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JOHN PODESTA: And welcome back to the stage, Mr. Secretary. I think if there’s one person on the planet who truly needs no introduction, it’s Bill Gates, an entrepreneur, a business leader, a technologist, an investor and a full-time philanthropist. We’re excited to have you here, Bill. And let me start by noting that in recent years you’ve focused your energies on the Bill and Melinda Gates Foundation and the challenges of global health, of education, of global food security. So I want to start by asking you a cheeky question to begin with, which is: What are you doing here? (Laughter.) Why energy? What’s your fascination? Is it a technological challenge, or does it relate to that bottom 2 billion people in the world that you’ve been thinking so much about and working so hard at? BILL GATES: Well, I think there’s two strong connections between my full-time work at the foundation and energy innovation. One is that if you look at the improvement in the human condition, you know, over the last 300 years, 200 years, it really has to do with energy intensification.

Writers like Smil are very eloquent on the direct connection between what lifestyles are like today, what materials are like today because of intense use of energy. And so if you want to improve the livelihoods of the poorest 1 billion in the world, having cheap energy – that determines, can they afford fertilizer; can they afford transport; can they afford lighting; can they afford the things that we take for granted as part of everyday life, everyday dignity. And the answer is no, without advances in energy, they stay stuck where they are. A second thing is if you look at who will be the victims of climate change scenarios, it’s equatorial, small-holder farmers. That is exactly these billion people who can barely get enough to eat today, whose children are largely un-nourished, have malnutrition.

That means that neither physically or mentally do they fully develop. And so the imperatives of reducing the negative impact on those people and providing them with the things where they can raise themselves up lead you back to wanting continued innovation in energy, with the constraint of no greenhouse gas emissions. MR. PODESTA: The secretary quoted Alfred Nobel in saying – in pointing us to the greatest benefit to mankind. Is it really in this space of developing low-carbon or no-carbon energy that’s affordable for the poorest people? MR. GATES: Well, I think it’s hard to make comparisons. You know, vaccination technology is pretty powerful stuff that improved the world. Cheaper energy would certainly be on the list of the three or four things you would most want to happen for the poorest people in the world. And if you don’t get it, it sort of reverses the idea that we’re eventually going to empower those people. In fact, you know, we’re making their conditions more difficult. MR.

PODESTA: Steve, ARPA-E is really focused on a national program of energy innovation, energy transformation for the – for the U.S. But how do you think about the role of ARPA-E and the department in this global challenge of changing our energy platform? Are we creating the technologies that are useful to meet the kinds of global challenges that Bill is talking about? SECRETARY STEVEN CHU: Well, the role of ARPA-E was – as I pointed out before, was short-term funding, just push it over the bump so that you can do things – things that went out of the laboratory but yet can’t really get the pilot-scale funding to say, OK, prove that you’ve got something here that can get private sector investment. And two-year, three-year limits on that – a small amount of money, but it’s proven to be very effective in leveraging that so that you can get private sector funding. That in itself doesn’t do the other things the Department of Energy does, the long-term fundamental groundwork research that the Office of Science does, nor did it – does more the steadier types of funding that the energy section of the Department of Energy does.

So it’s – plays a very important role that – and a very precise role in leveraging all the great ideas that come out of laboratories at universities. MR. PODESTA: And what’s its global impact? SEC. CHU: Well, the global impact is going to be if we do get, for example, these very inexpensive batteries, if we do get some of the real developments in, for example, photovoltaics, I see something – the combination of photovoltaics and energy storage – inexpensive, robust photovoltaics and energy storage is something that will go viral in the same way that cellphones went viral, not only in the developed world, but in the developing world. Perhaps the first thing you get in a developing country if you have any spare cash is you get a cellphone. And a cellphone leapfrogged past a transmission telephone network. We see photovoltaics and batteries as leapfrogging past the normal grid, and then you can bring this power to small villages, to places where you can read at night, to where you can run a refrigerator that can keep your medicines safe, to where you can run things to pump water for irrigation.

And so we see this as a huge potential worldwide. MR. PODESTA: Bill, you – (applause) – (chuckles) – give him a hand. Bill, you’ve been – you live at the cutting edge of an industry whose product cycle is – you know, seems to just speed faster and faster. In energy, we’ve had a slow innovation cycle over the past century. What’s your observation about why that is? What’s embedded in the current system? And how do we move towards the kind of innovation cycle that the secretary just mentioned? MR. GATES: Well, there’s some natural things about the energy sector that are always going to make it, because of the gigantic capital and equipment involved and the nature of the technologies, move a lot slower than the IT revolution. The IT revolution is the exception that kind of has warped people’s minds about how quickly things can work. You know, my favorite energy writer, Vaclav Smil – one of a dozen books I highly recommend is “Energy Transitions.

” It really goes through – between invention and deployment typically has been a 50- or 60-year cycle, you know, which is why he – when he looks at even these new things, you know, he – if you had to predict out CO2 emission over the next 40, 50 years, you know, it’s hard to see a year that there’ll be – there’ll be less coming into that. The energy sector is highly regulated. The so-called electricity providers are subject to state rate commissions. And so whatever technology they’re going to use, whether that can be priced through to the consumers is decided literally on a regulatory basis. The plants are large-scale enough, particularly for the energy farming type approach of solar, biofuels, things with very low energy density, that you’re going to run into lots of government regulation.

So it’s very different than having a software company or even a chip factory where your innovation cycles are two or three years and your dependence on government policy is very, very low. And so I do worry that people think, A, that some of the parts of the economics like storage, reliability, where it can be located – that people underestimate the difficulty of getting the breakthroughs, and they underestimate how long it’ll take, you know, which is why my – in my view, energy research in the U.S. across the board is greatly underfunded, you know, I’d say by a factor of two. I’d say that about ARPA-E. I’d say that about the Office of Science. The secretary has a hard time saying – making extreme statements like that.

(Laughter.) But I – you know, I’m more independent. And I think it’s very – it’s crazy how little we’re funding this energy stuff. (Applause.) MR. PODESTA: One of the things – one of the things that powered that cycle of innovation, though, was the – in the info tech side was also the revolution in telecommunications, where we also faced regulatory barriers and an incumbent monopoly, et cetera. Innovation took place at the edge of the – of that system. Is there – is the – is there the potential to see that in buildings, in smart buildings, at the – at – in applications in terms of distributed technology? Or is that just a pipe dream in your mind?’ MR. GATES: There are certain efficient things – efficiency things that are out at the leaf nodes like how you do lighting that certainly can proceed with five, 10-year cycles. And that’s a great thing. But when you talk about power that’s reliable, available all the time, those are big, complex systems.

Nothing is going to change that. All the technologies have that characteristic. So you’re just not going to see rapid turnover. And it’s also why, when you look at the market for power generation, in the U.S., we’re basically in replacement mode. We have just a slight increase – SEC. CHU: Right. MR. GATES: – in fact, if we get the efficiency, you could even a net decreased demand – although they’re shifting, if you move transport over to electric. China is a much bigger market for building new power capacity – more than a factor of 10. So it’s an unusual case, where, unlike the IT industry, the biggest market in the world is not the United States. It’s not even close to being the biggest market. SEC. CHU: Right. MR. GATES: And so you don’t have the same thing, whereby serving the most demanding customers here, that alone gives you the understanding and the volume to go out on a global basis. Companies working here on energy better have a plan of how they’re going to sell their stuff in China, Asia, at large, or else they’re just not going to be a scaled competitor.

MR. PODESTA: Steve, can we speed up that cycle of innovation? That’s the aim, I think, of ARPA-E. SEC. CHU: Right. But I think Bill had a very good point, because in a – in the energy – the way you generate energy, the way you distribute energy, the way you use energy is very complex. But what you can do is, say, you can anticipate developments. We can anticipate developments in batteries. And with those developments in batteries, you can then start to work with the power distribution company – you know, the utility companies – and say, this is what’s coming along. How do you foresee how you’re going to do power switching, generation and, as renewables get cheaper and cheaper, without subsidy, plan for that. If you don’t plan for it, renewables get up to a point and they will stop until the system reaches the next level, and then they’ll go like that.

You can actually accelerate it by saying, this is what’s happening; try to plan together. And you can perhaps make this transition twofold faster, but it’s not going to be a miracle. It’s not going to be overnight; that we all know. The other thing that I wanted to re-emphasize – what Bill said – is that the United States was the biggest market for a long time, and the biggest market is no longer in the United States. U.S. companies are beginning to realize this and plan to be selling products abroad and plan to be saying, where are the markets, manufacture in the United States – develop the technology in the United States, but there’s a huge market out there. And – but we still need to be showing technological leadership here at home. MR. GATES: In terms of planning ahead, though, I mean, you know, take the grid and the amount of time it takes to get grid permission across federal lands – SEC. CHU: Right.

MR. GATES: – the explicit plans for a grid that would accommodate new types of energy – I mean, if we’re planning ahead, it’s hard to notice. (Laughter.) SEC. CHU: So – and that – that’s a – that’s a tender point, and – (laughter) – I should say that the Department of Energy with – in cooperation with FERC, in cooperation with the Department of Interior, have now set up SWAT teams, teams specifically – there’s a(n) application for this line – let’s go through the steps, the environmental impact; let’s accelerate this, because yes, if it takes 10 years to put a transmission line in, this is going to really slow things up. And so we are focused on this. We know it is an issue. MR. PODESTA: Bill, you participated in the American Energy Innovation Council, which had a(n) extremely strong set of recommendations on energy R&D, innovation – sort of new structures in order to push the forward the R&D agenda.

But it basically, in my reading, kind of steered clear about government action that would shape the market – for example, by putting a price on carbon. Was that a recognition that things are just kind of hopelessly bogged down in Washington today, or do you actually think that an R&D-only strategy is likely to work to produce the kind of innovation and technology push that we need in the U.S.? MR. GATES: We certainly need a price on carbon. But it’s important to understand what the role – the role of the price on carbon. The price on carbon is to get people who decide to build energy plants to look out at their returns over a 40- or 50-year period and choose clean sources. And so it’s not that important what the carbon tax is today. In fact, with the fragile economy, it’d be hard to argue that’s what’s important. It helps only in the most modest sort of demand suppression mode.

What’s key is the carbon tax in the 20- to 50-year period, and can politicians do something today that would make it crystal clear to a risk-taker that there’s going to be a substantial carbon tax during the relevant time period, so that if I’m innovating in power plants today for people who buy power plants 10 years from now, their equation will favor the clean technology? The American Energy Innovation Council is about the thing that is urgent today, which is getting the revenue base to essentially double the science spending on energy, including ARPA-E, including Office of Science. And there, our timing wasn’t exactly perfect in terms of the pressures on the budget, and the open-mindedness to new taxes wasn’t really that great. What we said is that by putting a 2 percent tax on energy consumption, you could fund this additional scientific investment, and it would have a very good payback.

It would be great for the country, great for the world. And you know, we met with a lot of people. The president was great; he met with us and said, of course, this makes sense. But in the gridlock that we have today on this, the likelihood of that kind of allocation, including the tax revenue that would support it, is very low. And you know, that is deeply unfortunate, and that group is going to continue to advocate that we’re underspending. Perhaps the only effect we’ll have is that these budgets won’t be cut, and I guess that’s better than nothing. SEC. CHU: But – MR. PODESTA: Steve. SEC. CHU: But I want to add to that, and going back to how important research and development is for our future, because what we are focused on in the Department of Energy is, how do you reduce the costs of clean energy, how do you reduce the costs of efficiency so it even pays for itself in a faster, shorter amount of time? Those things are the things that will really drive the adoption. I talked about, in my remarks about the (Army ?) bill, that was a superior technology, and we very rapidly realized it was a superior technology.

And that drove the adoption very quickly. So if one can get wind and solar and energy storage down to where the whole package is cost-competitive with any form of energy, then it takes off. And this is what we’re very focused on at the Department of Energy. We want these things without subsidy just to take off. MR. GATES: Yeah. And I do think people, when they’re talking about power that’s nearby, power that’s available 24 hours a day, people underestimate how far away we are. You know, even the dollar-a-watt thing – SEC. CHU: Right. MR. GATES: – that’s intermittent energy and that’s energy where there’s sun. That’s very different than base load energy near to where it’s being consumed. SEC. CHU: Right. MR. GATES: So if we underestimate how hard it is, your goal is exactly right. When – if we estimate how hard it is, that’s partly why we can end up underfunding the kind of innovative work that needs to go on. MR. PODESTA: I want to come to some specific technologies and get to the base load question. We had an interesting conversation about nuclear power backstage.

But your TED wish last year was zero carbon by 2050, half the price of carbon-based energy. Are we anywheres near the level of R&D business investment, venture investment, business startup that would actually get you to imagine that we could hit that wish by 2050? MR. GATES: Well, I think we’re – we run a much higher risk that we won’t get the breakthroughs, because we’re underspending. And the amount that we need to spend as a percentage of the budget – you know, military costs, anything you look at – it’s very, very small. There is no clear mapping between the amount you spend on R&D and what you get out, you know. For all we know, there could be a – four or five companies that are – will come out with the pieces that are necessary that already have plenty of funds.

I think it’s more likely that the underfunding is delaying the pace of progress. And remember, the failures rates here are going to be well over 90 percent, you know. When you go out and look at batteries in that hallway, you know, if you can find the one out of 10, great. (Chuckles.) Go ahead and invest in it. That’s a great thing. But this is – this is a very complex set of technologies. And so we need literally thousands of companies to be trying these things to increase the odds that we’ll have the 10 or 20 approaches that will get us the magic solution. So people like Smil, who very responsibly look at this thing, would say no, we’re not going to hit that, that the number of pieces that have to fall into place are very, very large. Then again, when you meet with the companies, you see the energy, and you see the shift of IQ and money that a lot of – there’s a lot more activity now because of things like ARPA-E than there was even five years ago – you feel – you definitely feel good about – SEC. CHU: Right. MR. GATES: – that very smart people are coming to this, that the problem is better – being better characterized than it was in the past. It’s, like, give us an A for moving into the space.

But the (magnitude ?), I still think, is not at a serious level. MR. PODESTA (?): Underfunding on both the public and private side. MR. GATES: Well, the private sector, you – the private sector will do what it wants to do. It will look at the incentives that are out there – MR. : (Right ?). MR. GATES: – more private money has come in as the opportunity’s been recognized. But, with the right policy framework, you can increase that substantially. MR. : Right. MR. GATES: And a long term – you know, 20 to 50 years’ serious tax on carbon – say, you know, $40 a ton, $30 a ton – would change the way private sector dollars are spent. MR. PODESTA: Steve, do you want to – SEC. CHU: Well, I’m not going to use the “T” word. (Laughter.) But I think it is important – I agree with Bill entirely – that these long-term signals – you don’t need a signal in the next – we don’t want it – right now we’re trying to get out of a recession.

But the long-term signal – 23, 40 years from today – is very important. And it’s that long-term signal – it could be a modest long-term signal that says, all right, this is the direction we’re marching – that would actually spur investment, and I think that is an important part of that. But – and it doesn’t have to be a big signal. It just says, we’re firm; this is going – what’s going to happen. It’s like the miles-per-gallon thing: Get 55 miles to a gallon. It’s somewhat off in the future, but this, in many respects, is a very good thing because when that went through, the automobile companies said, all right, now we have to have a game plan. The engineers in the oil companies were very excited because they’d love to engineer to something better. And – but it’s going to be very good because it means that cars built in America could be marketed around the world, and that’s a very big deal. You can’t really – it’s very difficult, except for a few rare instances, to sell an automobile that gets 10 or (15 ?) miles to a gallon as a mass market outside in the world.

But there are many people who would buy a good high-performing 40-mile-a-gallon and 55-mile-a-gallon car. And what Detroit has shown is that it – once it recognizes this, they begin to make cars in Detroit, in Illinois, and other places around the country that could be marketed elsewhere. They make the car here; you sell it abroad. MR. PODESTA (?): Including the controls and materials and everything that goes into it – (inaudible). SEC. CHU: Right. And all the things – the materials, the development of the engines, all these things – all of a sudden, you see going in a different trajectory, which, in the end, I think would be very good for the U.S. MR. PODESTA: Let’s talk about a couple specific technologies. I mentioned nuclear. Bill, you’re involved with TerraPower, which is a – (inaudible) – MR. GATES: A nuclear startup company. MR. PODESTA: A nuclear startup – (laughter) – traveling-wave reactor.

Talk a little bit about what the strategy is with TerraPower in terms of where it’s positioned vis-à-vis the rest of the nuclear industry. MR. GATES: Well, in terms of the magic position we want to get into, unless you can take hydrocarbons and do extreme capture and storage, or unless the sort of energy farming – solar, biofuels, and all of the issues with that work out – you know, then you’ve got nuclear is the one left. And I think we should bet on all of these, and I think in each area we should have ideally hundreds of companies betting on them. Nuclear – there hasn’t been a lot of innovation. That is – and the industry essentially shut down in the 1970s. There’ve been small refinements since then. Now, we have an age where the ability to simulate lots of things, whether it’s diesel engines or what goes on inside a nuclear reactor, is utterly different. And so there’s some ideas, including the one we’re pursuing, where you use – you get 20 times as much energy out of the fuel as today’s reactor, you get less waste, you get better economics, you get less – (inaudible) – better economics, being the – you know, sort of the key thing there, and you get nuclear energy that’s very cheap.

At the basic level, when a – when you have fission, you get a million times more energy than when you burn a hydrocarbon. And so you think, wow, that’s a nice advantage – (laughter) – you know, we’re a million times better. Now, we have to build all these expensive safety anti-radiation things, and right now that factor of million more than gets used up. We’re not – current designs are not competitive with coal or – particularly $2.50 – (laughter) – (TCU ?) natural gas. That is very cheap energy, but there are nuclear designs, including ours, on paper that can compete on that basis. Now, getting a new nuclear design totally figured out, proving out the safety, getting the demo plant built – that’s very hard. But we have some – TerraPower, you know, a very high risk company, but the national laboratories, particularly Argonne and Idaho, are helping us with this stuff; the universities are helping with this stuff. The intellectual power of what’s been done in the nuclear space should allow for some radical designs that meet the very tough requirements that people should have there.

So it should be one of the places we pursue and, you know, it’s amazing to see, at least on paper, what it is possible. MR. PODESTA: And – MR. GATES: And it’s all supercomputers. I mean – SEC. CHU: Yeah. MR. GATES: – without supercomputers, we couldn’t talk about this. We can take our thing; we can run, you know, 100-foot waves over it, with lava, hurricanes – SEC. CHU: (Chuckles.) MR. GATES: – and we can test what it’s going to look like in the worst case. SEC. CHU: I think Bill makes a very important point, and it’s the fact that high-performance computing allows you to simulate a very complex process, whether it’s a diesel engine or a nuclear reactor, and in a nuclear reactor the design cycles are much longer. And so you really want to do simulation.

And it’s for that reason, one of our first innovation centers – “hubs,” we call them – where we get people across disciplines together – and said, we want to solve – a concerted effort for 10 years – an important problem. It was actually in the simulation of nuclear reactors, and it’s because we saw such an opportunity. You know, we are the leaders in the world in advanced simulation, and we can see this as, again, propelling our competitiveness forward, that we can simulate this. And so that was – it was actually the first hub that was up and on its feet and running, and it’s exactly ideas like that we, in the Department of Energy, say – very important. MR. PODESTA: In terms of the global picture now on nuclear, Fukushima certainly set back the nuclear renaissance. I mean, if you think – if you – if you look at what’s happening around the world – Germany, Italy, Belgium; even the leading contender for president of France now is saying they’re – he wants to reduce the reliance of the French electric fleet to 50 percent nuclear.

India – there’s resistance at the – at the – at the grassroots level to the – to the build-out. Only China is really powering forward in a kind of substantial way. Is – given that, plus the low cost of gas, are we likely to see, one more time, a stall in the ideas around nuclear? I know that – you know, Bill and his company are committed to it, but – SEC. CHU: Well, I hope not. I – certainly nuclear safety is first and foremost on everybody’s mind. There’s not only nuclear safety, but there’s nonproliferation concerns and, finally, there’s spent fuel. So those are the three issues. I – you know, I believe they are all solvable. The – let’s say, for example, the AP-1000, the Westinghouse new nuclear reactors, are – if devoid of controls and access to electricity and water for the first three days, you know, they’re gliding to a stop. The newer reactors, we think, devoid of everything, will completely glide to a stop without any risk. Those are the designs that we are – we are putting place. Meanwhile, the older reactors, we’re seeing what we can do to make them still safer.

And we do not want to put all our eggs in one basket. You know, when the president said “all of the above,” he really meant it. You – we have fossil, we have nuclear, we have renewables. We need all these things. We’ve got to get some of these cleaned up a little bit, but it’s all this mix. I think if you talk to any utility company executive to say you’re hanging it all on a – on a – in your business, where reliability and delivery is so important, you can’t just say it’s all here. If – you’ve got to diversify that supply. MR. PODESTA: Bill, I know you’re – and TerraPower’s in the very early stages, but if you think about licensing, siting, building a plant on – based on that design, does the United States seem like a hospitable – (chuckles) – environment to do that? MR. GATES: Well, any design that TerraPower would do would be for the global market. The question of where the demo plant, the first, is going to be built is something we’re exploring now. We’re talking to a lot of – a lot of different countries.

China’s one possible place that it could be built and, you know, it’d be a favor to the world if they would participate in that. The intellectual understanding of fast reactors, material science is deeply a United States thing, and it would be great if there was some outlet. Right now the U.S. has no fast reactor. In fact, if budget times were good, the American Energy Innovation Council – our proposal would have pushed for even more money, including some pilot – big pilot nuclear projects. But you know, we talked amongst ourself (sic). We decided that was unrealistic. And so we focused more on basic science. I do think we’ll find a place to get the demo plant built, and then if it delivers what we say, then that’ll be a benefit for climate change of a dramatic nature. I mean, remember, if you really rule out hydrocarbons because you can’t make carbon sequestration work, you have no base load power, none.

And so just do the math on the storage. It’s more than a hundred times greater than all the batteries ever made to try and use intermittent storage for a hundred percent of the powering. So the idea that we’re not going to have any base load sources of power, you know, just the numbers make that seem extremely unlikely. And so you know, this could play a major role. And certainly the costs can be very, very low. There’s no inherent reason by nuclear needs to be expensive. It’s been safer per unit of energy put out than other forms of energy, but it’s had some terrible tragedies based on designs done back in the 1960s. And so within the nuclear world, whatever gets built, generation three, which has the 72 hours of passive safety, AP1000, it will gain and be the main thing that gets built.

Gen 4 like the TerraPower – they’re all total passive safety because the understanding of how to do true passive safety and not require any human being to even look at a light and say, OK, what do I push now; which valves do I pull now – you know, if you need humans to do something, that is not a good design. (Laughter.) Let’s not have some guy sitting there waiting to do the right thing. MR. PODESTA: It’s the Homer Simpson role. (Laughter.) Steve, we’ve – I think Arun is going to talk about battery storage. We’ve talked a lot already today about storage of batteries for both building and vehicle perspective. But what about geological storage? Is there – is there – what’s your thoughts about meeting this challenge by using renewables and intermittents and storing that through other mechanisms, particularly geologically, to basically provide base load power? SEC.

CHU: Well, the two most effective large-scale storage mechanisms we have are pumped-hydro – you pump water up a hill, and if you have a set of dams or little reservoirs, you can do this, and by – and it’s very cost-effective, but it’s limited in certain geographies. Compressed air storage, also very effective – of scale, of the 10-gigawatt-hour scale or above. If you have a natural cavern that’s sealed, whether it be a granite cavern or something – you go into a salt dome and hollow out that – it can be a very tight seal – also very effective. Somewhat limited in where you go, but there’s – those things are being developed. And that’s a very big deal. And then after that there’s this sort of, you know, above-ground battery – more modest – I don’t see in the immediate future, you know, 10-gigawatt – one gigawatt-day worth of battery storage other than those things.

But again, lots of things can happen. I would agree that we will have – need a diversified supply of energy this century. But I also remember that the Wright brothers flew in 1903, and we landed a man on the moon in 1969. So things can happen. MR. PODESTA: All these things look – all these things are difficult and technologically hard to imagine. But does grid management and transmission begin to balance the question of whether you really need 10 gigawatts of storage to deal with a – SEC. CHU: At some – yes, at some level, it absolutely does. We’ve done experiments internationally, and the – experiments meaning if you look at the Iberian Peninsula – this is Spain and Portugal – roughly averaged over a year, roughly 25 percent of their electricity is in intermittents, wind and solar. They have a one-gigawatt tie line to the rest of the – Europe. This is a small sliver.

And so by transmitting over that, they can moderate that. Now – but you know, realistically, you don’t – it’s – it gets harder and harder the higher the fraction you go. And either you have very long-distance transmission, and then you run into all the transmission issues, or you have other sources. Compact sources are still going to be very important this century. There’s no debate about that. And these are – you know, are cleaner fossil fuel or nuclear power. MR. PODESTA: So coming back to Bill’s point, are you basically in agreement in terms of that we need a source of base load power that is carbon-free by – SEC. CHU: I think this century, yes. You know, but – and after that – you know, and following, you know – was it Orville and Wilbur Wright? (Laughter.) Or Yogi Berra – one of them – you know, it’s hard to predict what’s going to happen a hundred years from today. MR.

GATES: Yeah, storage is an interesting thing. There’s a path that NREL supports – doesn’t get a lot of effort – which is solar chemical, which is very interesting because it essentially has its storage solution built in. You’re taking photons and making hydrocarbons. And so it’s not impossible to think we might go down some path that, you know, gets you out of the need for storage. If solar thermal is good, then you’re storing heat as opposed to storing electricity, and there’s a whole bunch of paths that might work out for that. The path dependence on this thing is very complex. You know, if offshore wind is cheap, the grid the United States wants looks very different than if onshore wind is much cheaper than offshore wind. And so how do you prepare – how do you have a plan that can accommodate the various things that might happen with these economics? It’s not easy to do. You know, it needs a lot of, you know, scenario planning – things like the David MacKay book does, where it really asks the reader to go through and say, is there any source of energy you like that adds up to the amount of energy civilization will be using, and you know, if so, are we doing the right things to make that come about? SEC.

CHU: You know, but also, remember the two massive storages, water and compressed gas, are physical storage, right? Batteries are chemical storage. Heat storage is something which has not really gotten as much attention as it need (sic). We, both in ARPA-E and the rest of the Department of Energy, are looking at novel ways of storing heat where it’s chemically put on the shelf, that you can trigger and you recover the heat without the insulation. But even heat with insulation, if it’s large enough, becomes very effective. I’d cite a – two examples. It’s becoming more prevalent that you have either an office building or an office building complex – at night if you’re – if the electricity is cheap, you will chill water or you will freeze water to be used for cooling the next day. And this is increasingly being installed. If you have process heat which can be either used for heating or chilling, just have a big tank of either hot or cold water. I – you know, I visited very recently a cogeneration plant – this is gas-fired, but it’s only single-cycle gas, and then out comes very high-temperature heat. They use the heat as process heat – this is in Houston – to cool the air conditioners.

They use that process heat to cool a big tank of water so that they can now balance the generation of electricity with the heat, and that – it takes one-tenth of the energy to keep that big tank of water in the hot Houston summer cool. And they use that to chill their buildings – to run their air conditioning. And it’s very cost-effective. Now, if we can even push that further and drop the cost of heat storage, it could again have a profound impact on buildings, cities, hospitals, you name it. So we are looking at that as well. Again, going back to the old thing that a little bit of R&D, if you come up with some really good things, can actually find their way into the marketplace very quickly. MR. PODESTA: If we were talking five years ago, we’d be spending a lot more time on carbon capture and sequestration – (chuckles) – than we are today, I think, at this conference. Is the challenge of sequestration just too big in terms of both the technical challenge and the cost? And should we think – be thinking about utilization of CO2 either in building materials, liquid fuels? I’m on the board of a company that’s used CO2 – source for liquid fuels.

Or should – do we – are we going to stick with a strategy of thinking about what the regulatory and cost challenges are to a sequestration strategy? SEC. CHU: Well, I think because of the risks that climate change brings to us, we do need a long-term price on carbon. The fact that it – for a while looked like there might be a price on carbon over the long term, the fact that, at least for the immediate future, that went away and a lot of the U.S. companies – in fact, companies around the world who were going to invest billions of dollars in piloting or demo’ing carbon capture have pulled back. However, there is still a lot of interest in many of these companies in saying, all right, we can still invest in the carbon capture. We can take that carbon dioxide and use it for enhanced oil recovery or other means. So there’s still an appetite. In the end, you do need some price because it – I’d liken it to wastewater treatment. There has to be some incentive.

If you’re a town upstream, the cheapest way to deal with your wastewater is to dump it in the river. Cheap for you, very expensive downstream. And so there was something put it place that for the total cost is much cheaper in order to treat the water. And so if you talk about a fossil fuel plant, you know, it’s always going to be – no matter how good the technology, it always costs more to capture the carbon and sequester. So you need a little incentive. Meanwhile, we are developing methods to drop that price dramatically. MR. GATES: I think it’s one of the more under-invested areas on a global basis, you know, including the policies of how governments would deal with the long-term issues. But there have been a few (boarded ?) pilot projects in various places around the world. The scale of what’s going on now is dramatically less. MR.

PODESTA: Should the focus shift, then to utilization as opposed to deep storage? MR. GATES: No. Carbon dioxide doesn’t have that many positive economic uses to justify taking 7 billion tons a year and capturing it. Capture is about preventing global warming. There’s not some neat little, OK, maybe I’ll make my soft drinks a little fizzier – (laughter) – and this problem would be solved; you know, all promise to drink more carbon dioxide. No. (Laughter.) No. This is – it’s still somehow – MR./SEC. : (Inaudible.) (Laughter.) MR. GATES: There’s a million times more than all nuclear waste. This is big. And so just in a balanced portfolio of innovating, this one, because some mistakes that were made, a lack of international competition, this one is particularly underfunded, because there is promise there. It’s a possible path for reduction of emissions. SEC.

CHU: But while I agree with that, I will say for the next half-dozen years you can do a lot of the capture technology, and the EOR (ph) is still a very small part of it, but you get more confidence injecting underground, tracking what happens to the carbon dioxide. But in the end, yes, you will need a price on carbon. Absolutely. But, you know, for the next couple of years, this is how you can at least drive the technologies development forward. MR. PODESTA: Bill, you’ve kind of waded into the treacherous territory of geoengineering to mitigate climate risk. What’s your take on it? I know that you’ve personally funded some research in that area. How are you thinking about that at this point? MR. GATES: Yeah, I think it’s important to distinguished being for research on something, to look into it and understand its pluses and minuses, versus being for something. Nobody knows enough about any of the geoengineering approaches to be for them, and yet – some of these are things like putting sulfates high up in the sky to simulate what happens when you have large volcanoes.

The question is, should there be scientific work to look at these different approaches, including free air carbon capture. And yeah, I provided a modest amount of money so people can look into these things. It is one of the policy options that people talk about. And if the world doesn’t reduce CO2 emissions, it would be one of the few things you would do to avoid ecosystem disasters. And so, you know, it’s kind of like saying is heart surgery preferable to a good diet. Absolutely not; let’s go for a good diet. Understanding whether heart surgery works or not and the risks involved, so you can tell people, no, that’s not an option, or that perhaps it is, it’s going to take decades of work. It’s been kind of a banned area, where governments were not putting money into it.

I think that will change. I think it will become part of the dialogue and get a hard look because it absolutely needs to be understood. MR. PODESTA: Any thoughts? SEC. CHU: Well, certainly I would agree that we don’t know a lot of the consequences. We do – we actually have been geoengineering for a long time. Agriculture is huge engineering of a certain type. And, you know, mild forms of geoengineering, the idea of having roofs reflecting white is a very mild form of geoengineering. It reflects the sunlight back into space, which we don’t think there will be severe consequences of that. It lowers your air conditioning bill. Things of that nature. Plants. One of things we’re looking at, thinking about, you know, reforestation is a reversal of another form of geoengineering that we think is a mild form and it’s good. And then how do you actually get plants to bring out some of the carbon dioxide? And if we can use that, sequester that, that begins to reverse that we’ve been doing. MR.

PODESTA: We’re basically out of time, but I want to ask you both one last question, which goes to the Solyndra controversy. I think there’s widespread agreement in this room and in both parties and probably around the country that investments in R&D, the kind of work that ARPA-E is doing, is something that the government should support, but the department has also tried to get companies through “the valley of death,” if you will, through financing mechanisms. Has Solyndra sort of become an impediment to thinking about the government financing as a source for helping companies get through to that commercialization stage, or are we still – are you still committed to that? SEC. CHU: Well, certainly no one can deny that the reaction to Solyndra has, you know, a dampening effect on government- financed programs in companies. But you also have to realize that when this loan program was set up and passed by Congress, they knew they wanted the Department of Energy to invest in innovative companies.

That was a mandate. And they knew that not all of those would work, and so they set up a loan loss reserve fund, roughly $10 billion, appropriated. Appropriated means you could have spent it on hiring policemen and teachers. You could have spent it on research. You could have spent it on water projects. They appropriated this money expecting that some – there will be losses. Now, you know, it’s very – extremely unfortunate what happened with Solyndra, half-a-billion-dollar loss, but I would be personally very surprised if we’re going to lose a third of that appropriated money, you know. And so again – but the reaction was unfortunate. We should not lose sight of the fact – I can go back to this – that America is the most innovative country in the world. We can lead in these new technologies that the world will want. And bear that in mind.

And so in a certain sense it’s ours to lose; let’s not blow it. There’s a huge market out there. MR. PODESTA: Bill, any advice on this topic? MR. GATES: Well, the Department of Energy, with the stimulus act, was asked to very quickly get involved in some things that there had been modest activity before. And asking a department to move so quickly to do things, including creating ARPA-E, was a very tough challenge. And I think the department’s done very well. You know, ARPA-E got off, did a lot of good grants, has been able to make the case that they should be funded at higher levels. These loan guarantee programs, they brought in expertise. It’s easy to look at any individual one and say, hmm, you know, how do you think about that? But overall, we need to be willing to take risk. And there are going to be, sort of, anti-Solyndra stories; that is, things that paid off very, very dramatically. So, you know, I’m very supportive that we put more into this energy space. I’d like to see it double.

So, clearly I’m a fan of risk-taking. MR. PODESTA: Well, join me in thanking these two great leaders for a great conversation. (Applause.) (END).

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