Sunday, November 10, 2013

Energy Productivity is Key to Profits and Growth

“If energy efficiency improved by 2% a year, the entire global population at the turn of this century could live at the American standard of living with less energy than we use today.”  Dr. Richard Muller, speaking at WAVE event “GENIUS: Ideas and People that Move Us,” makes no apologies for being a capitalist, one who believes that “a solution which is not profitable is not sustainable.”  The key to profitable investing, he believes, is efficiency in the use of energy and resources.  Or, as he is more likely to say, energy and resource productivity.

At WAVE, we recently hosted Dr. Richard Muller, a Berkeley physicist and a leading authority on climate science.  An acclaimed author of ten books including “Energy for Future Presidents,” and a researcher whose projects have led to two Nobel Prizes, he initially earned (dis)repute for pointing out inconsistencies and inaccuracies in climate research.  Later, he designed and led the most comprehensive research on global warming, concluding that many solutions embraced by environmentalists, such as the electric cars and solar thermal energy, are futile.
The media’s focus on government’s missteps does not cloud the fact that we are at the beginning of a massive shift in industrial and energy technologies.  Energy and resource productivity are unfamiliar terms to many of us.  The economists and the newspapers talk more about labor productivity which has grown phenomenally over the last twenty years, thanks to the IT and telecom revolution.  But that revolution is reaching its limits, and marginal gains in employee productivity now show up more often in layoffs than in economic growth.

On the other hand, energy and resource productivity have been synonymous with progress for a very long time.  We have always understood that progress means growing more food with less water and land, producing more steel with less material and energy, and traveling farther with less effort and fuel.  It is not a surprising observation, therefore, that during the 30 years from 1950 to 1980, energy efficiency grew annually at 1.4% and the US GDP grew by 2.25% per year.  During the next 30 years, however, growth in energy efficiency fell by two-thirds and, simultaneously, GDP growth slowed down to 1.7% per year.  A report by the American Council for an Energy-Efficient Economy (ACEEE) postulates that if our energy efficiency had continued to grow at 1.4% after 1980, the US GDP would be $2.3 trillion higher today.

Efficiency lies at the root of our economic competitiveness and prosperity, as well as a cleaner and more sustainable future.  This is good news for us, as our portfolio companies are commercializing efficient, transformational, and profitable technologies to solve some of our most urgent problems related to waste disposal and food/drug security.  We come across a large number of highly innovative companies that are pushing the efficiency frontier in food, energy, water and resource markets, but are continually mystified with investors' fascination with electric cars than with the more immediate and practical solutions that are pushing the efficiency frontier.

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