This presentation is brought to you by Arizona State University's Global Institute of Sustainability and a generous investment by Julie Ann Wrigley. Wrigley Lecture Series– world-renowned thinkers and problem-solvers engage the community in dialogues to address sustainability challenges. My name is Chris Boone. I'm the Dean of the School of Sustainability at Arizona State University. It's my pleasure to welcome you here to this very special event– what we call our Wrigley Series. We call it the Wrigley Series because we're able to use some funds from a generous donor, Julie Ann Wrigley. So the basic message is, keep chewing gum and we'll be able to continue to offer these great speaker series. So the Wrigley Lecture Series on Sustainability brings world-renowned thinkers, as well as problem-solvers, to speak to us– the community as well as the university. They are chosen specifically for the effective work do they do in addressing sustainability challenges and not just talking about the challenges themselves but talking about the solutions to those challenges. A variety of individuals, in committee, decide on who we think would be the most provocative and interesting speakers to bring to this named series.
And it's my pleasure now to introduce one of those committee members– one of our own professors, Professor Harvey Bryan, who nominated our speaker tonight. Harvey is on our faculty in the School of Sustainability. He also shares an appointment with Herberger School of Design and the Arts. So, Harvey, if you would please come forward and introduce our speaker, I'd appreciate that. [APPLAUSE] Thank you, Dean Boone. Welcome. I believe we're going to have a truly inspiring conversation tonight. And it will be a conversation a little later. What I'd like to do is the official introduction. And then I'd like to do something– follow up with something a little more personal. So Amory Lovins is a physicist, environmental scientist, writer, chairman, and chief scientist at Rocky Mountain Institute. He has worked in the field of energy policy and related areas for four decades. Harvard- and Oxford-educated, he was named by Time magazine as one of the world's 100 most influential people in 2009.
He has promoted energy efficiency and the use of renewables and the generation of energy at or near the point of use. He has over a dozen honorary doctorates. He's a fellow of the American Association for Advancement of Science– a MacArthur Fellow. He was named Time magazine's Hero for the Planet. He's a recipient of the Blue Planet prize, the Volvo prize, the Heinz prize. If I had to name them all, we would be here all night, so– His books include Soft Energy Paths, Brittle Power, Natural Capitalism, Small Is Profitable, Winning the Oil Endgame, and his latest book, Reinventing Fire– which he will be having a book signing after the lecture. I've just one more item, which gets me to the personal side, which is another publication– an article, actually, not a book, which for me was the shot that started the alternative-energy revolution.
It was "Energy Strategies– the Road Not Taken." It was published in October 1976 in Foreign Affairs, which is the official journal of the Council for Foreign Relations. Which, if you know that organization, it's pretty much an establishment group. So it is a little disingenuous for executives from the legacy energy companies or utilities to say today they didn't see this coming. Because I think Amory laid out a plan for a clean-energy future 38 years ago. So it's not new. In 1978, I started graduate school in the Energy and Resource Group at University of California, Berkeley. And we call ourselves Ergies. Any Ergie alums out there– there may be a few. We have them here at ASU. Only to discover that Amory was going to be regents' lecturer this coming year.
And so that started a lot of fun for me, because that was an incredible experience. The seminars, the informal discussions during that time, was truly transformational. I remember one colloquium where we had about four faculty and maybe about 15, 20 students. And in that one group we had a future presidential science adviser, a future chairman of the California Energy Commission, four future MacArthur Fellows, and the rest all became academics or ran environmental NGOs. And Amory was leading us all in that discussion. So some of you may know me and know that I can be a little impatient with students– and even, sometimes, my colleagues– who don't seem to understand the profound and transformational changes that are happening in the energy arena and in the world. Well, you can thank this guy for some of that impatience that I have, OK? Please welcome Amory Lovins. [APPLAUSE] Thank you. After that generous introduction, I can't wait to hear what I'm going to say. But what I'd like to do, briefly, before we get into the conversation part of the evening, is summarize for you the results of a year and a half of effort by 61 of us at the Rocky Mountain Institute to figure out American energy solutions. It's a business book called Reinventing Fire.
And I should perhaps start by explaining the title. We have this peculiar public conversation about energy in this country that, if it were boiled down and expressed clearly, would be a stupid multiple-choice test. Namely, would you rather die of A, oil wars, or B, climate change, or C, nuclear holocaust, or D, all of the above? Oh, I missed one– or E, none of the above, which is the choice we're seldom offered. But what if we could make energy do our work without working our undoing? Could we imagine fuel without fear? Could we reinvent fire? And we chose that big, poetic title because, long ago, fossil fuels– well, first of all, fire made us human, and then fossil fuels made us modern in the past couple of centuries. But now we need a new fire that makes us safe, secure, healthy, and durable that works now and actually costs less than what we are doing.
So let's see how it would work. Four fifths of the world's energy still comes from burning, each year, four cubic miles of the rotted remains of primeval swamp goo, extracted and delivered with great skill. And those fossil fuels have built our wealth, created our whole civilization, enriched the lives of billions of people. But also they have rising costs to our security, economy, health, and environment that are eroding, if not outweighing, their benefits. That's why we need a new fire. And moving from the old to the new fire means changing two big stories. Oil and electricity each puts two fifths of the fossil carbon into the air. And they have almost nothing to do with each other. Less than 1% of our electricity is made from oil. But they have similarly concentrated uses, in that three quarters of the oil fuels vehicles, three quarters of the electricity powers buildings, and then the rest of both runs factories. So, if you make all the uses more efficient, you can save oil and coal and natural gas to displace both.
But today's energy system isn't just inefficient. It's also disconnected, aging, dirty, and insecure, so it needs refurbishment. But by 2050 it could become efficient, connected, and distributed, with elegantly frugal vehicles, buildings, and factories all relying on a resilient, secure, modern electricity system. So the United States can get off the oil addiction we've got and the coal addiction by 2050 and also use a third less natural gas while switching to tripled efficiency of use and three-quarters renewable supplies. And our kind of grand synthesis found that by 2050 this transition could end up costing $5 trillion less than business as usual, in net present value, assuming that all hidden or external costs like carbon emissions are worth zero– a conservatively low estimate. And yet this cheaper energy system could support a 158% bigger economy without needing any oil or coal or, for that matter, nuclear energy, using about a third less natural gas. And this could be done without any new federal taxes, subsidies, mandates, or laws. And it could be done without any new inventions.
No new laws? Huh? Well, let me say it again. I'm going to tell you how to get the United States completely off oil and coal by 2050, $5 trillion cheaper, with no act of Congress, the transition led by business for profit. And the idea is to use our most effective institutions– private enterprise coevolving with civil society and sped by military innovation– to go around our least effective institutions. And whether you care most about profits and jobs and competitive advantage or about national security or about environmental stewardship, climate protection, creation care, public health, reinventing fire makes sense and makes money. And this is a very transideological approach. Now Gen. Eisenhower reputedly said that if a problem's too difficult to solve, make it bigger. Move out the boundaries to include everything the solution requires. Don't just chop the problem into smaller, bite-sized pieces. And therefore, in Reinventing Fire, we integrated all four sectors that use energy– transport, buildings, industry, and electricity.
We happen to have worked in equal depth in all those, so that made it easier. And also we integrated four kinds of innovation, not just the usual two– technology and public policy– but also two even more powerful ones that are normally left out, namely design– the way we combine technologies– and strategy– new business models, new competitive strategies. And these combinations give you a lot more than the sum of the parts, especially in creating some deeply disruptive business opportunities. Where to start? Well, in this country we pay about $2 billion a day for oil and another $4 billion a day for the hidden economic and military costs of our oil dependence. So it would make sense to start by getting autos off oil, because they use about half of it. And to do that we just start with the physics of the car.
Two thirds of the energy needed to move a typical car is caused by its weight. And every unit of energy we can save of the wheels by taking out weight, or drag or rolling resistance, saves another six units of energy we don't need to waste getting it to the wheels and therefore saves altogether seven units of fuel at the tank. Huge leverage from making cars lighter. Except for the past quarter century, they have suffered epidemic obesity. They now weigh over two tons. They've gained weight twice as fast as we have. However, we now have very light, strong materials like carbon-fiber composites that can make dramatic weight savings snowball and can make autos simpler and surprisingly cheaper to build– lighter and more slippery. Autos also need less force to move them, so their engine gets smaller. And then you can afford to use electric propulsion, because you need two or three times fewer of the costly batteries or fuel cells.
Therefore, the sticker price of the car converges towards today's level. Driving cost per mile is much lower from the start. So that specific sequence of innovations can shift automakers from wringing tiny savings out of essentially Victorian steel-stamping and engine technologies to the steeply falling costs of three mutually reinforcing technologies– namely the ultralight materials, their structural manufacturing techniques, and electric propulsion. And if you're exploiting three steepened, synergistic learning curves while your competitor is out on the flat part of one of them, you win. Sales can grow and prices can drop even faster with a temporary policy called a "feebate," which, like all the policies I'll mention, can be done administratively or just at a state level, where we always make most of our energy policy, anyway. And "feebate" means rebates for efficient new vehicles paid for by fees on inefficient ones.
This is running now in various forms in five European countries, plus Singapore. And the biggest European program, which is in France, actually tripled the speed of improving car efficiency just in its first two years. Now this shift to electric autos is going to be as game-changing as the shift from incrementally improved typewriters to the dramatic Moore's law-driven gains in computers. And, of course, computers and information technology are now America's biggest industry. Typewriter makers have vanished. So vehicle fitness, taking the obesity out of the car, opens a very powerful, new automotive-competitive strategy that doubles the oil savings and also makes affordable the electrification that can replace the rest of the oil. And it also derisks the auto industry, to a considerable extent. Now a lot of different countries like America or China or Japan could lead this revolution and overcome its formidable barriers, which are mainly cultural.
We're helping some of the leaders in the industry to do that. But the current leader is Germany. Volkswagen has begun, last year, low-volume production of this two-seat, carbon-fiber, plug-in hybrid car getting 235 miles per gallon equivalent. BMW is ramping up midvolume production of this carbon-fiber electric car, whose carbon fiber they say is paid for by needing fewer batteries. And their CEO says, we do not intend to be a typewriter maker. Because he can look across Munich to where Olympia used to make excellent typewriters. There are other things in the works. Even two years ago, Audi showed an over 250 mile a gallon carbon-fiber, midsize, SUV concept car. And there's some interesting things that American industry can bring to the table. I brought along tonight my carbon cap, which is a test piece for military helmets that have been shipping for several years. This was made seven years ago in one minute.
And if I hit it, you'll be able to hear from the sound how extremely strong and stiff it is. [METALLIC THWACK AND RESOUNDING RING] We can pass it around, if you're careful to get it back to me afterwards. Don't worry about dropping it. It's tougher than titanium. Tom Friedman whacked it with a sledgehammer and couldn't even scuff it. So, now that we have technology that can make complex, two by two meter parts in about a minute with near-aerospace performance, if you scale that kind of technique to US automaking it can save 80% of the capital needed in that industry. It can save a lot of lives, because this stuff can absorb six to 12 times as much crash energy per pound to steel and do so more smoothly. And the oil saving, just for the US, would be equivalent to one and a half Saudis or half an OPEC from drilling in a very perspective play called the Detroit formation.
And those negabarrels under Detroit, saved barrels, cost only $18 each because you only need to pay for the electrification. The ultralighting is approximately free, paid for by much simpler automaking and a smaller propulsion system. And those negabarrels are also domestic, secure, carbon-free, and inexhaustible. Of course, the same physics and the same business logic also apply to heavy vehicles. Walmart's using about 44% less fuel to move a case of merchandise than they did in 2005, thanks to better truck design and better logistics. You may have noticed also they just showed a concept truck with terrific aerodynamics and carbon-fiber trailers and so on. Altogether, the technical potential alone is to triple the fuel efficiency of those heavy trucks. And if you combine that with the tripled- to quintupled-efficiency airplanes being designed at places like Boeing and NASA and MIT, you've got nearly $1 trillion of heavy-vehicle fuel savings available.
And in both heavy and light vehicles, today's military revolution in energy efficiency is going to speed all these advances in the civilian sector, which uses over 50 times as much oil as the military, much as military R&D has created the internet, the global positioning system, the jet-engine industry, the microchip industry, thus transforming the civilian economy. Only this time the leverage can speed our nation's journey off oil so we don't need to fight over oil, so our war fighters can have negamissions in the Persian Gulf– mission unnecessary. They really like that idea. Also, as we design and build vehicles better, we can use them a lot smarter. This is a typical congestion graph during a day, showing the morning and evening rush hours. And if that were an electricity load shape, we would throw a lot of IT-enabled smart grid and demand response pricing at it to try to flatten out those peaks.
But, by not yet doing that for road traffic, we're wasting many billions of dollars a year through idle people, idle vehicles, and idle roads. But, rather than just watching traffic double, as is officially forecast, we could actually use four proven techniques to reduce needless driving. We could use smart IT to charge drivers for their road infrastructure by the mile, not by the gallon, and some more IT to enhance public transport and to enable car sharing and ride sharing. We could encourage developers to do more new urbanist and smart growth models so more folks are already where they want to be and don't need to go somewhere else. We could use IT to make traffic free-flowing. And when you add up the proven performance of those four techniques, we could actually get better access in this country with about 46% to 84% less driving, saving another $0.4 trillion dollars.
So, 40 years hence, a far more mobile US economy could be using no oil. And it turns out saving or displacing each barrel costs an average of about $25. Well, if you do that and, instead of buying the barrel for over $100, that's $4 trillion net present value. If I had counted, by the way– which we did not– the hidden economic and military costs of US oil dependence, that saving would be $12 trillion dollars. Now, to get mobility without oil, we can first get efficient and then switch fuel. So, to phase out the oil, we start with the efficiency in the government forecast, add the vehicle fitness, add the more productive use of vehicles, and then those 120 to 240 mile per gallon equivalent cars can run on any mixture of hydrogen in green electricity in yellow and advanced biofuels in orange. The heavy trucks can realistically use hydrogen or advanced biofuels, or the trucks could use natural gas. But none of them will need oil.
And the total amount of biofuel required is so small you could get two thirds of it from waste and all of it without displacing cropland or harming soil or climate. So our little team speeds this journey off oil through what we call "institutional acupuncture." Where the business logic is congested and not flowing properly, we insert needles in carefully chosen points, in partners like Ford and Walmart and the Pentagon, to get that qi flowing. And this long transition is already so well underway that even five years ago mainstream analysts were starting to see "peak oil," not in the supply but in demand. Because, as with whale oil in the 1850s, oil is becoming uncompetitive even at low prices before it becomes unavailable even at high prices. But electrified autos don't need to add new burdens to the electricity system. Rather, when smart autos exchange electricity and information through smart buildings with smart grids, they're adding to the grid flexibility and distributed storage that help the grid to accept varying solar and wind power.
So electric autos make the auto and electricity problems easier to solve together than separately. And they also converge the oil story with our second big story, saving electricity and then making it differently. And those twin revolutions in electricity are bringing more profound and diverse and numerous disruptions than in any other sector, because 21st-century technology and speed are now colliding head-on with 20th- and even 19th-century institutions, rules, and cultures. Now, changing how we make electricity gets easier if we need less of it. Today most of it's wasted, and we keep improving the means of saving it faster than they're installed, so the unbought reserve of negawatts keeps getting bigger and cheaper. But as buildings and industry start to catch up and get efficient faster than they grow, America's electricity use, instead of growing 1% a year as officially forecast, could shrink 1% a year, net of the extra use for the efficient electric autos. And, in fact, US electricity use hit a maximum, as did gasoline use, in 2007. And they both have been going down ever since, even as the economy grows.
The electricity used, weather-adjusted, to make $1 of GDP fell, just in the year 2012, by 3.4%. And we can keep demand going down by reasonably accelerating existing trends. Specifically, over the next 40 years, US buildings– which, I'll remind you, use three quarters of the electricity– can triple or quadruple their energy productivity, saving $1.4 trillion net present value, with a 33% internal rate of return. That is, the savings are worth four times their cost. Industry can double its energy productivity with a 21% internal rate of return. And to get those things done by 2015 we would just need by 2030 to have achieved on national average the adoption of energy efficiency that the Pacific Northwest states already achieved nine years ago. Whatever exists is possible. Now a key to such big savings is a disruptive innovation we call "integrative design" which often makes very big energy savings cost less than small or no savings, turning diminishing returns into expanding returns. That's how our 2010 retrofit is saving two fifths of the energy in the Empire State Building. We first set up a little, temporary window factory on a vacant floor and remanufactured all 6,514 windows into super windows that insulate several times better and that are almost perfect in passing light but blocking heat.
Those plus other improvements reduce the peak cooling load of the building by about a third. And then we were able to renovate smaller chillers, rather than adding bigger chillers, saving $17 million of capital cost, which paid for most of the other improvements and reduced the payback time to just three years. A major energy service company had offered a three-year payback, but their saving was only 7% because they were optimizing components in isolation. We saved six times more with the same three-year payback by optimizing the whole building as a system. And our latest cost-effective deep retrofit of a difficult, 48-year-old federal office building in Denver is expected to save 70%, still cost-effectively, making it more efficient than the most efficient new US office building.
Let's try another kind of building– my own house. Judy and I live at 7,100 feet in Western Colorado, near Aspen, where temperatures have gone as low as minus 47 F. We've had as much as 39 days of continuous midwinter cloud. A few weeks ago, we had 26 inches of snow in 24 hours. It doesn't have to look like this to work like this. This house actually is an archetype of the European passive-house movement, which has over 30,000 houses and apartments which, like ours, need no heating but have roughly normal construction cost. Now, if we go into the central atrium, under glass that insulates like 14 sheets of glass but looks like two and costs less than three, two years ago in a February snowstorm this is what it looked like. You can see two of the five banana crops that were then ripening. Now, two years later, we have six banana crops ripening– numbers 48 through 53. And actually two recent crops a year ago harvested themselves when their 65-pound weight pulled down the tree. Now when I first moved in, in '84, this house was using about 1% the normal amount of space of water-heating energy, a tenth the normal household electricity, half the normal water– all with a 10-month payback.
Today's technologies are a lot better, so we've retrofitted them. And we're measuring about 300 data streams to see how much better they are. Trouble is, the monitoring system seems to be using more electricity than the lights and appliances. And similar design techniques and integrative design have been used to eliminate air conditioning up to at least 115 F, with lower construction cost and better comfort, or to save 90% of the air-conditioning energy in steamy Bangkok, with normal construction cost and better comfort. Probably about everybody in the world lives in a climate somewhere between old Snowmass and Bangkok. But, wherever you live, the key is integrative design that gets many benefits from each expenditure.
So this white arch that holds up the middle of my house has 12 different functions, but it has only one cost. Integrative design can also increase the half-trillion dollars of conventional energy savings in industry. Dow Chemical, for example, has already captured $9 billion of those savings on a $1-billion investment. But there's a lot more to do. For example, three fifths of the world's electricity runs motors. Half of that runs pumps and fans. We can make all that equipment a lot better. But first we should tackle bigger, cheaper savings that are normally left out. They're not in any official study. They're not in any engineering textbook I know. And they're strikingly effective. For example, pumps, the biggest use of motors, move liquid through pipes. But a typical pumping loop, which happened to be in a carbon factory in Shanghai, was redesigned to use at least 86% less pumping energy not by using better pumps or motors or controls but just by replacing long, thin, crooked pipes with fat, short, straight pipes.
And that, of course, makes the pumping equipment smaller, so the capital cost goes down. In our own house, we've got a 97% saving on pumping energy that way, at lower cost. So this is not rocket science. It's not even a new technology. It's just rearranging our mental furniture as designers. What does that mean for the electricity that goes three-fifths to motors? Well, if you feed 100 units of, say, coal into the power plant, there are so many compounding losses that only a tenth of that fuel energy actually comes out the pipe as flow. But if we go from right to left, we can turn those compounding losses around backwards into compounding savings. And every unit of flow or friction we save in the pipe compounds back again to save 10 units of fuel in cost and pollution and what Hunter Lovins calls "global weirding" back at the power plant. And as you go back upstream, the components get smaller and cheaper.
So our team has lately found such snowballing energy savings in over $40 billion worth of diverse industrial redesigns, from this Hewlett Packard data center and Texas Instruments chip fab to Rio Tinto and Anglo American mines and Shell hydrocarbon facilities and a bunch more. And typically our retrofits of supposedly pretty good designs have a design saving around 30% to 60% of the energy, with two- or three-year paybacks, while in new facilities the savings often get bigger– about 40% to 90-odd percent but generally with lower capital cost. Now, if you need less electricity, because you save so much in buildings and industry, it gets easier and faster to speed the shift to new sources of electricity, chiefly renewables. And China is leading their explosive growth and their plummeting cost, shown here on a logarithmic scale, for photovoltaic modules and wind farms. And both of those, in good US sites, are already marketplace winners, beating new combined-cycle gas plants on levelized cost. Actually, in Germany and parts of Australia it only costs about half as much to install a solar system as it costs in this country.
We all buy the same equipment, but they're more streamlined at putting it in. So we're figuring out how they do that, and our costs are plummeting, as well. But even at double the German-installed system costs, in about 20 states developers will happily come to your house, put photovoltaics on your roof– with no money down, which soon will be a cash-back offer– and beat your utility bill. Well, if you combine that with several other equally unregulated products, you can end up with a virtual utility, kind of utility in a box, that will bypass the power company, just as cell phones bypassed wireline phone companies. And that's already happening in Hawaii, where they have very expensive, oil-fired electricity and 10% or 15% of the houses have already gone solar. Many of them are dropping off the grid. And that's starting to spread across the United States. We just put out a report called The Economics of Grid Defection showing that that grid parity of distributed solar power plus distributed storage– to do what the grid does, without the grid– should cross the country pretty much within the asset life of what utilities now own.
So that sort of thing gives utility executives nightmares and venture capitalists sweet dreams. But also, of course, the incumbent utilities can perfectly well turn it into a new business opportunity. There's a bunch of intelligent ways to incorporate the insurgency into the incumbents' business models. And actually we have two separate branches of our electricity practice at RMI– one working with attackers, one working with defenders, because competition is good. So we're– [LAUGH] And here's the big picture. Worldwide, starting in 2008, half of all the new generating capacity added in the world each year has been renewable, the two fastest-growing parts being wind and photovoltaics– which actually just crossed over wind last year. And together those and minor renewables are adding over 80 billion watts in each of the past three years.
They're getting a quarter trillion dollars of investment. And the reason they scale so incredibly fast is you no longer need to build a cathedral to make electricity, taking 10 years and costing billions of dollars. Because in that time you can instead build a whole series of photovoltaic plants– say, one a year– each of which will produce each year so many solar cells that that one year's production from one plant will produce, each year, as much electricity as your cathedral was going to produce when you got it done in 10 years. So that's why solar is scaling worldwide faster than cell phones. And China, in 2012, made more new electricity from nonhydro renewables than from all coal and nuclear sources combined. So it's no wonder that in this country we have more solar jobs that we have coal or steel jobs. And the solar jobs are growing 10 times faster than general employment. But China, last year, added more solar cells that we have in America, even though we invented them. And these sources have now far surpassed the installed capacity of worldwide nuclear power, which already was losing net capacity before the Fukushima accident.
And worldwide orders for coal and nuclear plants are fading away, because they have no business case. However, we are often told that only those coal and nuclear plants can keep the lights on, because they are 24/7 whereas solar and wind power are variable and thus supposedly unreliable. Well, both parts of that statement are wrong. First of all, "variable" does not mean "unreliable." During a stormy winter month the red line shows the output of France's wind power, and the blue line shows the forecast of that output one day ahead. I'll bet we wish we could forecast demand that accurately. And then no generator is 24/7. They all break. And big ones are typically down about 10% or 12% of the time. And when a big one fails, you just lost 1,000 megawatts in milliseconds, often for weeks or months, often without warning. That's why the grid was designed to back up failed plants with working plants, to manage this intermittence of big thermal power plants. And, in exactly the same way, the grid can manage the forecastable variations of solar and wind power by diversifying a portfolio of those sources by type and location and forecasting it and integrating it.
National Renewable Energy Lab has shown how to run very nicely a fully reliable 80% or 90% renewable US power system. Now this can also work in a smaller area. So, to pick a difficult case, let me show you the isolated grid of Texas. In 2050, in a typical summer week, it might have a load shape like that, or smaller and less peaky but still about 30 billion watts, if you use the electricity efficiently in a way that saves money. Well, let's meet all of that with renewables. 86% on an annual basis, from a mixture of wind and solar. You can see how variable they really are. The other 14% from the other renewables, which are dispatchable. You can have them whenever you want. So that's things like geothermal, small hydro, burning municipal solid waste, burning feedlot biogass in combustion turbines, burning energy studies, solar thermal electric– with heat storage to run it into or through the evening. So we're now 100% electric in this simulation, but it's not a great match to the load shapes. We have both surpluses and deficits.
However, we can take the surpluses and store them in two kinds of distributed storage, fully built out– namely ice-storage air conditioning and smart charging and discharging of electric vehicles. And we can then recover that distributed storage when we need it and the fill in the last bits with unobtrusively flexible demand. And now we have reliable power every hour of the year. All the moving parts fit together properly. And only 5% of the renewable output is left over. So the economics will be quite good. Now this is not just theory. Some countries, particularly in Europe, already run their grids with exactly this choreography. Germany, the fourth-biggest economy in the world, is about a quarter renewable electricity. Denmark in 2012 was 41% renewable electricity, Scotland 40%. First half of last year, Spain 48%. Portugal 70%, up from 17% eight years earlier. Small countries can move fast.
And we're starting to see the same in some American states. Iowa and South Dakota are about a quarter wind-powered, Texas about a tenth– some days closer to a third. Our own utility, Xcel, in Colorado has been over 60% wind-powered for an hour. The lights stayed on. The Big Island in Hawaii is 57% renewable, heading for 70% in about three years. So so much for the supposed reliability limits to wind and solar power and the supposed need for bulk storage, which none of these countries have added. And there's another very important trend going on, namely a shift towards more distributed generation. Denmark used to run on just a few big coal-fired power plants but, over three decades, has shifted to a constellation of wind, in blue– 84% owned by the farmers and their communities– and ag waste cogen, in brown. They're headed for all renewable energy of all kinds by 2050 at essentially no extra cost. And they've also been reorganizing their grid in a cellular architecture that makes cascading failures impossible.
Now– brings us back to the American grid, which is so aging and dirty and insecure that we need to replace it, anyway, by 2050. And it turns out, whether we replace it with more of what we've got or with new nuclear build and so-called "clean coal," or with centralized renewables, or with half distributed renewables, it all costs the same, regardless. It's about $6 trillion net present value. But those four futures differ profoundly in their risks around national security, technology, fuel, water, finance, climate, and health. This is a risk-management play– same cost, different risk. Now, for example, we have this very overcentralized grid that is vulnerable to cascading and potentially economy-shattering blackouts caused by operational problems like squirrels or solar storms or superstorms or earthquakes or physical attack or cyber attack. And practically all of this stuff has happened lately. But that blackout risk disappears, and all the six other kinds of risk are best managed, with distributed generators reorganized into local microgrids that normally interchange power freely through the grid but can stand alone at need.
They can disconnect fractally, reconnect seamlessly. That is the Pentagon's strategy for its power supply, because they need their stuff to work. Of course, so do the rest of us whom they're defending. That's why my house is built that way. It works with or without the grid. And, at about the same cost as business as usual, this resilient grid architecture could maximize national and community security, and customer choice and innovation, and entrepreneurial opportunity. So let me summarize the electricity story. Together, efficient use and diverse, dispersed, or distributed, resilient renewable supplies are starting to transform the whole sector. Utilities used to build just different kinds of big power plants and occasionally little bits of efficiency renewables, and we would reward them, as we still do in 36 states, for selling you more energy.
I believe that is the practice here, as well. On the other hand, in about 14 states we've changed the rules to reward utilities for cutting your bill. And what typically happens then is the investment rapidly goes the other way up. It shifts massively towards efficiency, demand response, renewables, cogeneration, distributed storage, smart grids– especially in the three fifths of the states where electric savings or demand response can bid directly into the same auctions as the supply side. We had a recent auction where 92% of the winning bids came from the demand side, because it was cheaper. Competition is amazing when you let it work. So we actually have a great deal of choice. Our energy future is not fate but choice. And that choice is very flexible. Back in '75, our government and industry all insisted that the primary energy needed to make $1 of real GDP could never go down. So it was heretical when I put an article in Foreign Affairs magazine saying it could go down by threefold.
What happened? Well, it's down by over twofold, so far. And yet now we have much better technology, integrative design, more mature financing and marketing and delivery channels that give us a very clear line of sight to tripling efficiency all over again at only a third the real cost that we used to think. So, to solve– I mean– to solve the energy problem, we just needed to enlarge it and integrate it. And the results may at first seem incredible. They surprised even us a bit. But, as Marshall McLuhan said, "only puny secrets need protection. Big discoveries," he said, "are protected by public incredulity." Now combine the electricity and oil revolutions, and you have the big story, reinventing fire, where business enabled and sped by smart policies in mindful markets can get off of the now uneconomic technologies of oil and coal and nuclear by 2050. And I dare say we're not the only country that can do that.
But in the US case, we found it was $5 trillion bucks cheaper to do that, while growing the economy 2.6-fold and reducing carbon emissions 82% to 86%, all using existing technology. Now, if you like any of those outcomes– any one or more will do– you could support that transition without needing to like every outcome and without needing to agree about which outcome is most important. So, by focusing on outcomes, not motives, we can turn conflict and gridlock into a unifying solution to our common energy challenge. And then we'd also find that these best buys are also the most effective solutions to the big global problems that hazard every country's security and prosperity. Our little team at our nonprofit, Rocky Mountain Institute, is helping smart companies and other places like ASU to get unstuck and speed this journey by various sectoral initiatives and projects.
We're also applying this same work to China, to inform the 13th five-year plan. I'm just back from Beijing, where we've had our second set of review meetings, and it's getting quite exciting. Of course, there's a lot of old thinking still out there, as well. Maurice Strong, who used to be an oilman, said "Not all the fossils are in the fuel." But when Edgar Woolard was chairing DuPont, he reminded us that firms hampered by old thinking won't be a problem, because, in the long run, they won't be around. So what I've described for you is not just a once in a civilization business opportunity. It's one of the greatest transformations in the history of our species. Because we humans are really inventing a new fire– one that's not dug from below but flowing from above.
I've even heard theologians talk about energy from hell and energy from heaven. And this new fire is quite different. It's not scarce but abundant, not local but everywhere, not transient but permanent, not costly but free. And, but for the transitional tail of natural gas and a bit of biofuel grown in ways that sustain and endure, this new fire is flameless. And, very efficiently used, it really could make energy do our work without working our undoing. Each of you owns a piece of that $5 trillion dollar prize. And our book details how you can capture that. So, with the conversation begun and at reinventingfire.com and with a TED talk and a Foreign Affairs paper and a huge amount of technical resource online, let me invite each of you to engage even more– with us, with each other, with everybody around you– to help make the world healthier, richer, fairer, cooler, and safer by together reinventing fire. And thank you all and this remarkable place for who you are and what you do.
[APPLAUSE] What chair would you like? Thanks. You pick it. OK. All right. Amory, thank you so much. There's a term I've been hearing lately called "ecosystem services." And everyone's talking like it's a brand-new thing. What would you have called "ecosystem services" 20, 30, 40 years ago? We called them "ecosystem services." There's a lot of that in a book we did with Paul Hawken called Natural Capitalism. Exactly. Yeah. Pointing out that things like cycling nutrients, cycling water, pollination, regulating the climate are all services we can't live without. And, as Ray Anderson pointed out, the economy is a subset of the environment, not the other way around. And why do you think we've been able to sort of almost lie to ourselves about that being true? Like, how have we had an artificial existence with that, before now the alarm bells are ringing? Well, there's this prevalent and contagious brain disease called "economic theory." It is sometimes curable, and there are some very good economists out there. But if you get too confused between the map and the territory, you could easily persuade yourself that human transactional relationships seen through the lens of price are how the world works and that we can safely ignore the biological context, the envelope that contains, sustains, and provisions all of this economic activity.
I actually was told, the other day, of an economics professor who had said– when told climate change is about physics, he said, well, don't worry– economic law will always overcome physical law. [LAUGHTER] That's a little scary. That is a little scary. So I met Amory Lovins in 2007, when I started Carbon Nation. A buddy of mine in England– I called him really late at night, because it was early in the morning. I said, I'm going to make this film about solutions to climate change. And he said, I just read this article in the New Yorker about Amory Lovins. You've got to meet him. So you were actually person number 1 I wanted to interview for the film. And he was about person number 3 that we actually got, in New York, the first time. And then, that summer, Rocky Mountain Institute had its 25th anniversary. And I'll just tell a really quick story. So Bill Clinton speaks. He opens the event. Lots of energy from that. He goes scooting out to wherever he was going. And this room's buzzing.
And see Amory kind of futzing with the belt buckle of a very old gentleman. and I thought, that's got to be his uncle or his dad. And it turned out it was your dad. He was 96. So I decided to stay couple days later so I could interview him. And so we got to interview your dad. And one of the things he said was that you were reading the New York Times when you were four– and understanding it. Do you remember that? Oh, sort of. Sort of? And then you go to Harvard at age 16– Yeah. But you didn't finish. Yeah. But somehow they invited you to Oxford, to become a don. Yeah. How did that happen? How did the– [LAUGHTER] How did you not finish at Harvard, and you got yourself to Oxford? Well, I dropped out of Harvard halfway through because they were closing loopholes ahead of me, not just behind me. I wanted to study what I wanted to study, and they wanted me to settle down and get a major.
And I said, this is a university, isn't it? Why can't I study what I want to? They said, no, we've got to protect you from your exuberantly transdisciplinary impulses– [LAUGHTER] –in case it doesn't work out well. So I transferred to Oxford as a grad student, because they didn't know what to do with me. And then I was running out of money again. And my squash partner said, well, I've got this nice scholarship at Merton, the richest old college. And it's running out, so they're going to advertise it again. Why don't you apply? All they could do is say no. So I applied. Halfway through the short-list interview, found I was being interviewed for much more exalted postdoc thing called "junior research fellowship," which would make me a don, because they both used the same application form and there was no place to check which one you were applying for. So anyway, I got that one. [LAUGHTER] And that was good for three years.
And I could do whatever I wanted, but they wouldn't– with one exception. They wouldn't let me do a doctorate in energy. Because this was in '91– '71. Sorry, '71– right. '71. 1971. Uh– [LAUGHTER] So that's two years before the Arab oil embargo. And they said, energy? What's that? It's not an academic subject, is it? We haven't a chair in it. Pick a real subject. So I said, sorry, I think it's about to become really important. I need to go work on it, and I'll just resign the fellowship. So they now have a chair in it. Now what in 1971 made you think about energy as important when most people in the world didn't? Well, anybody who was paying attention in '71 knew that the whole system is about to blow up. And even in the– What were those indicators? Read the– Am I going too far back? Read the damned newspapers.
I mean– [LAUGHTER] Look at economics. Look at the Middle East politics. But broadly, even in the mid-'60s it was obvious there were two existential threats to civilization from our energy system, namely climate change and nuclear proliferation. And we'd better be darned sure we didn't have either one, let alone trade off one for the other. And through decades of dumb policies, we now have both. But there's still a lot we can do about both of them by taking economics seriously. And it was also obvious that if you looked at the whole tangle of challenges around population, resources, environment, development, security, economy, energy was kind of a master key that could unlock a lot of those and teach us how to think about the others, like water. So I thought that would be a really fruitful area to look into. And so I did. My first professional paper on climate change was in '68. And by '76, with a lot of good discussions at Shell, my Foreign Affairs paper had reframed the energy problem around the end-use least-cost approach.
What amount and quality and scale and source of energy will do each desired job in the cheapest way? And that set off a furious debate. After a year or so, the dust had settled, and it's now the approach anybody uses that really wants to understand what's going to happen. And it's proven very fruitful in other fields. Now it's been attributed to you, the phrase "the pioneers get the arrows"– "And the settlers get the land." That's not mine, and I don't know whose it is. It's not yours? That's a very old one. OK, there you go. Enough said on that one. Now, when you were at Oxford, and you were a don, and you look like you– that was the path to a long career at Oxford, right? That– Mhm. And then you left– And, in fact my squash partner is still professor of Economics at Oxford. Proof in the pudding.
So you left to protest the building of a copper mine in Wales? Well, not exactly. I left because I wanted to work on energy. But in the meantime I had fallen in with Dave Brower, who built a lot of the modern US environmental movement– greatest conservationist in the 20th century. Most remarkable man. And I met him because I– to help– he owned some bad knees. I'd been doing a lot of mountaineering and mountain photography in North Wales. And it turned out the world's largest mining company wanted to start a big copper mine in the middle of the national park there and dredge the Mawddach estuary for gold, and I thought that was a bad idea. So meanwhile I'd been sending some slides to Dave because National Geographic said, well, he might like this sort of thing. For us they're too atmospheric and not representational enough. So I sent them to Dave to ask if he had some advice, because I was running out of money to buy film. Kodachrome and processing were very expensive, and I was a starving student.
And my cophotographer Philip [INAUDIBLE] Evans, who was the lab technician in the Physics department– and the finest color landscape photographer in Britain, it turned out– had done a bunch of stuff that Dave liked. And one day he said, I've got this contract with McCall to do a dozen of these exhibit-format books on the Earth's wild places. One of my authors just got sick. I'll give you a half hour to decide if you guys want to do a book on North Wales. So we did. And it turned into a case study of British national-park policy. And, as a result of that and a BBC film we helped with, the mining company Rio Tinto went away mad, and the copper's still in the ground. Actually, had they mined it they might have gone broke, because the copper market crashed as they would have been at their maximum outstretch of cash flow. But they didn't take my efforts to help in quite the gracious spirit in which they were meant. [CHUCKLE] There's not a picture of you with some flowers around it, at the Rio Tinto headquarters? Well, actually, we are there favorite consultant, and they are our favorite client.
Because now, for many years, their chairman advised by the then-head of Friends of the Earth UK, who was leading the campaign against their mine, they have become the leader in greening the global mining industry, which has a lot of work to do. And isn't it funny how these things come around? When you realize, as somebody remarked in Adam Kahane's recent book Power and Love, if you're not part of the problem, how can you be part of the solution? And sometimes, after dinner with some of the Rio Tinto executives who were not around then and don't know this history, I recount to them how we first met. And we all have a good chuckle over it. Now you mentioned institutional acupuncture. Do get acupuncture treatment, yourself? Occasionally. Yeah? And do you meditate, as well? There's a lot of students here, and I've found meditation to be incredibly helpful. And I– Well, mountaineering is a meditation.
Music is a meditation, sure. So, yes. I don't have a– as regular practices. I'd like to. Although in my younger days I did on occasion. And you play piano, as well. Well, I used to. My last recital was in '71. Oh. [LAUGH] [LAUGHTER] But you have a nice piano, that's for sure. Yeah. So, systems. I'd have to say that, since I've come to ASU, that's been one of the things I've learned most. The newest idea is obviously not new at all. But it's become very clear to me– it's been very well described to me. Talk to me about how the word "systems" or the concept of systems has played in your thinking, which maybe made you look way ahead of the game just because you were looking at a bigger picture? Maybe what Eisenhower's talking about– making a bigger problem. Hmm. Well, I've always been one of those who dig wholes– uh– [LAUGH] with a W-H. And I guess it's partly being immersed in nature a lot and realizing how everything is connected that made it clear that a lot of the way our society's gotten in trouble is the Cartesian, reductionist fallacy that if you take something big and complicated and interconnected and chop it into a lot little pieces it'll be the same as the sum of the parts.
Even Aristotle knew better than that. How did that grab hold, that concept of reductionist science? How did that happen? Well, it was very powerful in its application to create things like the Industrial Revolution. But its unexpected consequences come about because that's not the way bit, complicated systems really work– like nature or societies. And I also had very eclectic interests, because although originally I had a long educational track in physical science, I had a parallel track that went chronologically– music, classics, math, linguistics, some law, a little medicine, a lot of mountain photography. And at that point I started to diversify, because in our line of work you need to pick up a couple of new disciplines a year. You never know what they're going to be. And if you do that for a few decades, everything reminds you of something.
So I've taught now at 10 universities but only subjects I've never studied, because then I can have beginner's mind and it's much more fun. Do they know that when they're hiring you? If they read my resume, yeah. [LAUGHTER] And actually I was very lucky to discover early– and I'll just let you all in on it, in case you don't know the secret yet. There are few if any disciplines that a smart and motivated person can't learn as much about in six months as most– not all, but most– people in the field know. Once you realize that, you can be utterly uninhibited in romping around in anybody's intellectual turf you want. There aren't really any boundaries. It's all academic tribalism that creates artificial boundaries. Any cultural anthropologist would have a field day with this. So you just, you know, jump the fences, walk on the grass, and go learn whatever you need and want to learn.
And the more eclectic it is, the better. We have too many narrow specialists. We need people who can make new kinds of connections. And if, indeed, you know some physics and some cultural anthropology and some ancient history and some Chinese literature and art history, and even a bit of economics, you'll probably be able to figure out important, new ideas that are actually useful– the vision across boundaries. The silo-spanning or silo-busting– a lot of which does go on here. And it's a great credit to your president and your university that that thinking has found a home here. Yeah, I've never been in a university before, and I haven't found any kind of silo situation for myself. I just go where I want to go, and it's working fine. What is triggering– what's inspiring you right now that maybe you haven't put into your slideshow? What's sparking? Well, the, uh– we have a lot of exciting stuff going on at RMI, particularly with our very dynamic new CEO, Jules Kortenhorst.
But I think I'm most excited by how the China work is going. Let me tell you a little story. When Natural Capitalism came out, in '99, within a few weeks some unknown hero at the Chinese embassy in London had a copy in Beijing on the desk of [INAUDIBLE] who was the number two ideologist of the Chinese Communist Party and a most remarkable man. He wrote the slogans that shape the nation's mind. So think of him as a really high-level ad-executive creative for 1.3 billion people. And he read this thing and thought it's the greatest thing since boiled rice and just what China needed at this stage of her development. So, with our blessing, he decided to publish it. And he had it translated by a crack team. He wrote a preface in the name of the party saying it's politically kosher. He came up with a fabulous title for it– [SPEAKING CHINESE]– which is literally Treatise on or Ideology of Natural Capital.
But in those five characters, it bows to Marx, Lao-Tze, Confucius, environmentalism, capitalism, business management culture and several other axes– and I'm not even counting the homophones. He had it published by his daughter's house, Shanghai Popular Science Press. He had it launched by [INAUDIBLE] in Shanghai. During the course of this, we became acquainted. One day, we were floating down the Huangpu River, through Shanghai, and I think he's looking kind of wistfully over at the docks area. I said, do know that part of town? He said, oh, yeah, I was in manual labor over there for 10 years in the Cultural Revolution. And, as I talked to him some more, I think, wait a minute– this guy sounds like a Taoist. So I pull out my little stone that says "Tao," and he lights up. He didn't know there were Western Taoists, let alone that I was one. And, at that point, we were instant brothers.
Except he doesn't tell me one thing– he has leukemia, and he dies six months after the book comes out. Whereupon his former boss, the retired number-one ideologist, who was the top economist in China, whom I met in '87, Tong Dalin, takes up the campaign. And, in memory of his friend, and for the sake of China, he puts this translated book personally in the hands of the then and the later paramount leaders of China, all the provincial governors, all the members of the State Council, saying "you must read this." And, because of who he is, many of them do. And the academy spends about a year and a half vetting it and summons me to answer questions about it. And they seem to be directionally satisfied, because I'm told this had a lot to do with China in '05 adopting energy efficiency as its top strategic priority for national development. Now we wrote the thing for American business leaders, not for ideologists of the Chinese Communist Party.
But what the hell– we'll take it. Isn't it funny how these things work? And I have the intuition now that we may just have the right team and the right ideas at the right time to have a similarly useful effect on the emerging 13th five-year plan, whose energy authors actually make up our steering committee on this project– various ministers and state counselors who are very enthusiastic about this approach of finding the maximally practical and cost-effective efficiency renewables, including integrated design, to be applied to the Chinese system using Chinese models, data, examples, analysts. So we've teamed up with their top two energy outfits that work for the National Development and Reform Commission, which writes the strategy of the country and enforces it, and with the China Energy Group of Lawrence Berkeley National Lab. And, uh– very excited by how that's going. So we've got the base case now.
We're nine months into a two-year effort, and sometime this fall we should have the Reinventing Fire China scenario with dramatically lower energy use for the same economic output, lower cost, much less carbon emission and air pollution. So, less water use. And it's, uh– That's scale. Yeah. That is scale. It is remarkable how– well, these are people of very high quality, personally and professionally. And most of them are engineers, by the way. A very technocratic government. And the most powerful of the four state counselors we work with, 10 minutes into my first meeting, was saying, well, now I see what you've got. When you're ready to move on A, B, and C, I want to take them to State Council tomorrow and make them national policy. Can you imagine some of our government officials doing that? It'd be pretty amazing. Yeah.
So there's microphones right there and right there, on each of the three levels. So if anyone has any questions, you can start lining up as I continue down a little more line of questioning. So here you are at Arizona State University. We clearly have a president and an administration and a faculty world and a student body that love what you're doing. And I would imagine a few of them, especially students, would like to go to China with you all. Am I right? Am I wrong? Yeah, I see one hand. OK, so she wants to go, and he wants to go. How would– what about a pipeline between ASU and China, via RMI? Is anybody talking about anything like that? Oh– I don't know. So we could learn what the Chinese are learning and bring it back, or– [LAUGH] Well, I'd have to consult with my colleagues. Just a thought. Yeah.
This project is run by Dr. Jon– J-O-N– Creyts– C-R-E-Y-T-S– who, uh– a former McKinsey partner. And we have a number of native Chinese on staff and more on the way. Obviously there are language barriers, and my Mandarin's not very good. I could see how the language would be an issue. So we've got a question right over there. Yes, thank you. I'm Jamie Kern. Thank you so much for coming out and sharing– thank you so much for coming out here and sharing everything on a very commonsense level with us. My question is, other than educating the entire public on the matter to change policy, how can we go about– which is extremely difficult and rarely happens but would be great– how do you go about taking this information and turning it into actionable work and getting the governments or the jurisdictions or, in Arizona's case, the Corporation Commission, or on a national level, some activity towards a renewable-energy future? Well, we like to work with effective institutions.
And they're different in each place. So we tend to work much more with the private sector, in the United States, and with the most capable government agencies like NDRC in China– completely different way of doing things, but whatever works. If you're trying to change things here– well, actually, there's a Chinese proverb, [SPEAKING CHINESE], column which means "heaven is high, and the emperor's far away." But it applies equally to both our countries. They're both big and diverse and complicated. And I expect in Arizona people think that Washington's pretty far away. And you do your own thing here. So you have to understand your local ecosystem. And you understand it a lot better, I'm sure, than I do. But whatever group or individual you're dealing with, just follow the old Saul Alinsky principle of talking to folks where they're at, not where you're at.
Talk to their concerns in their language. Don't feel you have to inflict your truth on them. And it also helps to be apolitical– that goes beyond nonpartisan– and to practice what you might call "aikido politics," in which you honor others' beliefs as you would your own, whether you agree with them or not. You don't fight with an opponent, you dance with a partner. And you are committed to process, not outcome, in the conviction that from a good process will emerge in a better outcome than anybody had in mind in the first place. And then your responsibility is to ensure that whoever needs to take credit for the outcome will do so, whether they deserve it or not. [CHUCKLE] It's like the Tao Te Ching remarks about water– that that which is of all things most yielding can overcome that which is most hard is a fact known by all but used by none.
Being substanceless, it can enter in even where there are no cracks. All right, there's a question up top. Did I see one? Yeah. Hi. A couple of times on the media– this is going to be a detailed question– I've heard representatives from various power-generation companies make the argument that rooftop photovoltaics are actually unfair to people who don't do that because everybody has to use the same infrastructure, and these people are paying less in their utility bills and therefore less for the infrastructure. And therefore everybody else has to pay more. Why doesn't the media say, yes, but if we have more locally generated energy you don't need as much infrastructure? Mmm. I wonder if they would apply the same argument if I buy a more efficient refrigerator. It's– you know, photovoltaics are a negative load. It's kind of the same story.
So I should pay more for my refrigerator, just because other people have to pay. [LAUGH] So there are difficulties with the argument, and the so-called cost transfer is often exaggerated, sometimes by counting all of the solar-generated electricity, even though rather little of it is typically sold back to the grid from your house. Most of it you just use, yourself, and it counts like a negative load. But there is a germ of truth in the argument, namely that net metering– which I've benefited from in Colorado, before it was law– does break at scale. So if you are going to go to a very large scale, enormously larger than net metering today– so it might actually become an issue worth talking about– then you probably want a different tariff structure. And we're actually helping a muni in Colorado think this one through, in Fort Collins. The idea would be a bidirectional value tariff where the utility and the customers pay each other the fair value of the services they exchange.
Because if you're making photovoltaic energy, you're not just making kilowatt hours. You're providing on-peak capacity– very reliable on-peak capacity. You're providing local resilience. You could provide a mixture of real and reactive power. You are helping unload distribution transformers so they last longer. You're helping with better distribution, circuit management, and fault management. You can provide fast regulation, which is a very valuable service, for frequency and voltage stability. There's a whole host of ancillary services you're providing that have an ascertainable value. And our e-Lab, Electricity Innovation Lab, has put out a nice report on that that's, like all its reports, open on our website, rmi.org. Well, it turns out in the more detailed studies that these services back to the system– you're not just using the system, you're helping the system– are often worth more than the whole cost of the photovoltaic system.
And there is therefore a benefit you're providing that ought to be properly credited. And if the value exchanged is properly compensated both ways, that scales up just fine. And it then displaces the costly new or replacement infrastructure, as you suggest, and provides better service at lower cost for all customers and, if it's structured right, can enable the provider to make more profit and less risk. So I think that's a very good way forward. But we are still at an early stage in this rapidly changing industry of thinking through together the new business and revenue and regulatory models– grid integration, grid security. Those are the hard issues that the 40-odd leaders in e-Lab are thinking through– really inventing the next electricity industry. And it's also a safe place for incumbents and insurgents to talk to each other and create mutual value, rather than just lobbing grenades in public.
Wouldn't it, um– Thank you. Under that scenario, where there's so much benefit that the solar panels offer into the system– a system that's owned by and run by the utility– wouldn't it make sense, then, for the utility to just be throwing a bunch of solar on people's rooms and being a part of that? Yep. I mean, look. If you're an incumbent and I'm an insurgent, and I'm running around putting solar on your customers' roofs and you think of it as a competitive threat, well, let's see– what could you do? You could play ostrich. That's not a good strategy. Just ignore it. Or you could try, as some do here, to fight it or tax it or block it. That turns out to be not a very smart strategy either, because, among other things, it annoys the customers. So they're more likely to drop off later and think bad thoughts about you. But there are several ways you could actually create value from the insurgency. You could buy my company and offer your product as your branded offering. You could be a financier.
You don't have to make money by building big power plants. You can make money as a banker and probably at less risk, and it has some nice features. You could be an integrator of all technically qualified offerings. You could do other coopetition models with me and with other vendors in competition. There's a lot of ways to create mutual value, here. And the smartest utilities are figuring that out. Where are those smart utilities? [LAUGHTER] [APPLAUSE] Well, I've been– not to give too much away– I've been meeting with several of them. I met with the chair and CEO of one just a few days ago, in the Midwest. There are some very interesting things going on in San Diego. I was wondering. The Fort Collins municipal utility– little one– is doing some very nice work. So is the Austin muni.
There are a lot of smart people in big and small shareholder-owned utilities trying to think this through. And they need all the help they can get. It's not easy. No, it's complicated. The one parallel that I see is if we all go to electric vehicles, then we're not buying gas, therefore we're not paying the federal gas tax. Therefore our roads aren't being– you know, the road repair's not being funded. Have you guys walked through that one at all? Well, you know, which is why Washington state and Colorado have just put a small, like, $50-a-year tax on electric cars as their contribution to highway upkeep. But I think this is not just an electric car thing. As your car gets more efficient, you're paying less gasoline tax. Or if you switch to a nontaxable fuel like hydrogen for a fuel cell– which you can make yourself– you know, bootleg in your garage out of natural gas or propane or electricity– who's going to know? Then you're dropping out of the gasoline-tax payment.
The sensible way to do that showed up in my graph earlier. It went by a bit fast. But that's to charge drivers for the road infrastructure they use– You said "by miles." –by the mile, not by the gallon. And that also overcomes another awkward problem that about a third of Americans are too old, young, poor, or infirm to drive, but they end up paying the socialized costs of the drivers. And I think it makes more sense for drivers to get what they pay for and pay for what they get. So, if you imagine a coalition of, let's say, AARP and poverty advocates and disabled advocates and youth advocates saying, why are we paying for drivers' costs, when we don't drive, that would be politically pretty potent, especially in this state. It would be. You have a question over here. Yes. And we just have time for one more question, and then we'll have our reception and book-signing. All right, Lauren– keeping us in line.
Sorry. We got– you've been up there a long time, so why don't you go ahead and– I was just wondering. You know that plastic thing you had? I was wondering why auto manufacturers haven't adapted it. It's not plastic. Or– Well, it sort of is plastic. Is it? It's thermoplastic plus carbon fiber. And carbon fiber is made of propane, but it could be made of carbohydrates, if you prefer. Molecules is molecules. Got it. I'm [INAUDIBLE]. But, to his question, why isn't that being used more? Well, I mentioned the first two carbon-fiber production cars are in production in Germany now. Actually, there's some others that are kind of street-licensed Formula One like McLaren. And there are carbon-fiber parts creeping into lots of cars, for lots of reasons.
But, in fairness, there were both technical and economic obstacles to widespread use of that material. And there are 17 competing production processes. I just mentioned one I think is particularly good. But I used to chair that company, so I know something about it. Is that BrightSource? No, that was Fiberforge. But that technology has now been sold to Diefenbacher, a leading German [INAUDIBLE] one. So that's going to the supply chain. There are still areas where maturation is needed. But it's not so much in the manufacturing anymore as in things like learning the best techniques for simulating crash behavior and having to change the internal process for how you design and build a car. You have to reorganize the whole company, and it's quite a wrenching cultural change. And it's particularly hard because this industry historically counted cost by the part or by the pound, but you buy it by the car, so it was harder for them to see it's OK to spend more on the body in black in order to pay less on the power train and assembly and so on, and it comes out about the same. And they also had a very bad habit of treating sunk costs as unamortized assets and making strategic decisions based on accounting, not economics.
As if it were better to write off obsolete stuff later, when you don't have a company, then now, when you do. So they just had to write off a huge amount of stuff. That was very painful, and that bankruptcy or near-bankruptcy does concentrate the mind wonderfully. So now there's a new set of leaders in Detroit who think rather differently. I was going to go for one more, but he– oh, there you are. Let's just– one more question. Yeah. Thank you, Peter. And thank you, Mr. Lovins. My name's Kevin Kelleher, and I'm a student at ASU in Supply Chain Management and Sustainability and cofounded a students sustainability consulting group. And on behalf of students and anyone else here who's seeking to help fight the good fight that your organization does, I've followed your work for awhile, and I really appreciate it. And the information about what China's doing is really inspiring, but it's also really frustrating. That might be the biggest understatement of the year, from an American perspective, in how ineffective our government is and how hard it is to make advancement in this area. So do we go to the private sector? And, if so, where do we go? Organizations like Tesla? I don't think you're going to hire all of us at RMI, right? Probably not.
We're only about 100 people. Well, I would suggest you brighten the corner where you are. And there are very exciting things going on, here at ASU, which I trust you are fully involved in. But if we all put our shoulder to that wheel, we can do something unique and remarkable here. And it is already getting into the superlatives column among universities in America and in the world. And I think that's a wonderful place to focus your efforts. You don't need to solve the whole country's problems right now. You know, ASU today, and America tomorrow, and the world next week. We'll take it in a piece at a time. Just one little thing. So you've got folks thinking federal government– bleah– not working fast, and all that stuff. One, you've got the Department of Defense, which is a huge part of our federal government, doing a lot. And then you've got governors doing some more, and then you've got mayors doing a lot.
Exactly. Can you talk to that? Yeah. This is a pretty decentralized country. Federal energy policy is important in a few areas like FERC's interstate regulation– a few other areas. But really, most of our energy decisions that really matter to what happens are in a state and local level. And that is the realm, indeed, of mayors, city councils, county commissioners, public-utility commissions. And it's messy local politics. But also, don't think it's all about government. Most of what really happens in our society is through the interplay of private enterprise with civil society. And at RMI, when Hunter and I set that up, in '82, we thought through what was going to happen and figured we would be wise not to have a presence in Washington, not to lobby, not to litigate, but to work chiefly with business, because we wanted to get stuff done. And that has worked out very well. That's a great note to end it on. Everybody, let's give Amory Lovins a hand.
Thank you. [APPLAUSE] This presentation is brought to you by Arizona State University's Global Institute of Sustainability for educational and noncommercial use only. .