Saturday, 28 March 2009

Charge! Rise of the electric car

As car makers everywhere plan for a low-carbon future, Vauxhall hopes to build its green hybrid at Ellesmere Port, says Sarah Arnott
Saturday, 28 March 2009

GM IS applying for loan guarantees under the Government's £2.3bn car industry rescue package to help ready its Ellesmere Port factory to produce Ampera hybrid electric vehicles.
The application, which is understood to be for up to £750,000, is part of the plan to establish GM Europe as a separate entity from its beleaguered US parent.
While GM in the US is expecting a decision on its recovery strategy from the Obama government next week, discussions in Europe focus on loan guarantees from Germany, which is home to three of the subsidiary's main manufacturing operations. But the UK, and the Ellesmere Port factory, is also crucial. GM in the UK contributes a quarter of the European company's business, and low-carbon developments are central to future plans. "If the German plan goes through, it is the first big step towards electric production in the UK," an industry source said.
Assuming it survives, Vauxhall is already committed to produce the new Astra at Ellesmere Port in September. The Ampera – which can be charged from a household socket and combines a lithium-ion battery with an on-board petrol engine-generator – is based on the same mould as the Astra, and has a range of up to 300 miles. The US import is scheduled to go on sale from 2011.
Although there are barely more than a few thousand wholly electric cars on UK roads today, and only a few tens of thousand hybrids such as the Ampera, GM's electric dreams are shared by all the major car makers. The Government is also trying to nudge things along. The loan guarantee package Vauxhall hopes to tap for the Ampera was launched in January in response to the crisis bedevilling the industry. Notwithstanding the flak the scheme has drawn for tying assistance to long-term, low-carbon programmes, rather than focusing on the acute short-term problems cutting a swathe through production and jobs, green cars are the future. Matthew Alabaster, the manufacturing director at PricewaterhouseCoopers, said: "Electrification is a great long-term opportunity. It is not going to yield massive business in the short term, but it is where the industry should be pushing."
Battery technology is the key. The only entirely electric vehicles currently available are small, urban runabouts like the G-Wiz. Models that are capable of longer journeys – such as the Ampera or the well-established Toyota Prius – are hybrids combining battery power with either bursts of speed from a standard internal combustion engine or electricity generated by it. Existing batteries simply cannot last long enough or provide enough power without being too heavy. But while there is research on the subject, it is not co-ordinated. "We are nowhere near leading on battery development, but it is still unclaimed ground," Mr Alabaster said. "There is a fantastic opportunity for the UK, but at the moment research is so disparate and disconnected across industry and academia that there is no commercial alignment."
In the meantime, the big manufacturers have big plans, all at different stages of development with different technologies. Honda's new hybrid will go on sale in dealerships next week, imported from Japan. The Insight is a five-door, family car priced at around £3,000 less than its nearest rival. "We are trying to bring hybrids more into the mainstream," a spokesman said. "Honda builds cars as near to the market as possible, so if demand takes off then we could build them here. But there are no plans to do that as yet."
Nissan has just launched a four-month programme with OneNorthEast – the regional development agency local to its Sunderland plant – looking at how to bolster the use of electric vehicles and considering the feasibility of both sale and manufacture in the region. Jaguar Land Rover recently won a £27m government grant to build the LRX all-new Range Rover diesel hybrid at its Halewood plant, and is also applying to the loan guarantee scheme to help with parts of its £400m annual research and development spend.
Toyota's FT-EV, an all-electric "urban commuter vehicle" like the G-Wiz, was showcased at the Geneva Motor Show earlier this month, and is scheduled to go on sale in 2012. The Japanese giant is also starting trials of the next-generation Prius in Strasbourg later this year. Scheduled for a 2012 release date, the Prius will be rechargeable from a normal household socket.
Tiny electric cars may have a limited consumer market, but they could be a good answer to companies running city delivery networks. Modec, which builds battery-run commercial vehicles, went into production in 2007. Although the numbers are small so far, it already counts Tesco, Fedex and Marks & Spencer among its customers.
Both limited-range battery-powered cars and the bigger hybrid models are only an interim technology. Professor Baback Yazdani, the dean of Nottingham Business School, said: "Hybridisation will be for the next five or 10 years, the next generation technologies like hydrogen fuel cells will come after."
A vital issue, both for electric cars (see box) and whatever supersedes them, is the support infrastructure. Honda has a leasing programme for its FCX Clarity hydrogen car in the US and Japan, but the UK is not even on the radar. "The big question in the UK is there is no hydrogen infrastructure," a spokesman said.
On the road: How to fill up an EV
*There is little point in having an all-electric vehicle (EV) if it is impossible to keep the battery charged.
*So far, London is the most EV-friendly location in Britain. The capital's 2,000-odd EV owners register, receive a radio frequency-controlled access card not unlike a door pass, and draw power from any of 40 charging stations. There are also 40 charging points outside London.
*Within two months, there will be 100 bays, and by the end of the year more than double that, said Calvey Taylor-Haw, the managing director of Elektromotive, which supplies the bays.
*For EVs to take off, cities will be need to be crammed with charging points – outside cinemas, shopping centres, offices. "Instead of filling up the car once a week and running it to empty, you plug in whenever you stop," Mr Taylor-Haw said.

An all-electric sedan, awaiting U.S. government aid

By Claire Cain Miller
Published: March 27, 2009

LOS ANGELES: Tesla Motors on Thursday unveiled its Model S, an all-electric sedan it hails as the beginning of a generation of fossil-fuel-free cars and a profitable company.
But before that happens, the company must find the money to build the vehicle. Tesla is pinning its hopes on Washington and a $450 million government loan. The company expects to hear from the Energy Department this year.
"We are highly confident that Tesla will be selected, and it will occur this year," said Elon Musk, the company's chief executive, after displaying the car to customers, analysts and reporters in a gigantic hangar set up to look like a lounge at SpaceX, Mr. Musk's rocket factory. His other venture is to build a spacecraft.
Tesla, which was founded in 2003, was heralded as Silicon Valley's solution to the nation's energy problem. If a struggling Detroit could not make an electric vehicle, then a Silicon Valley start-up would.
Today, Tesla is facing the same plight as many green-energy start-ups. These huge, capital-intensive projects have been paralyzed by the credit crisis, and their survival depends on federal loans that have only just started to flow.

"Silicon Valley has mocked the government for decades and is now completely dependent on it," said Michael Kanellos, a senior analyst at Greentech Media. "They can't get a project off the ground without these loans."
The Model S is Tesla's second car. Its first is the $109,000 Roadster sports car. An elite group of 300 own the car and the waiting list is 1,000 names long.
The Model S, which Tesla says would be the first mass-manufactured all-electric car, will cost $57,400, or $49,900 after tax credits. Mr. Musk said that, when gas savings are taken into account, buying a Model S will be comparable to buying a $35,000 Ford sedan. "Would you rather have this car or a Ford Taurus?" he asked, pointing to the sporty silver prototype.
The car will travel 300 miles on one battery charge, he said, and the battery can be recharged in 45 minutes. The car is big enough to carry five adults and fit two children in rear-facing seats in the trunk. There is a touch screen in the console connected to the Internet and storage under the hood.
The Model S is supposed to be ready in mid-2011, but that will depend on securing the government loan and finding a site for the auto plant. Mr. Musk said Thursday that Tesla was close to signing a deal to build a plant in Southern California.
Tesla has spent $50 million developing the Model S and needs $250 million to $300 million more, he said. Once Tesla finds a site and gets the money, it will take 24 to 30 months to begin production, he said.
Tesla has raised $186 million from investors, $55 million of it from Mr. Musk, who made his fortune when PayPal, which he helped found, was sold to eBay. Other investors include Google's billionaire co-founders, Larry Page and Sergey Brin, and Draper Fisher Jurvetson, the venture capital firm.
Mr. Musk has said that he underestimated the money, time and effort needed to build a car company.
Tesla hopes to receive one of two government loans it is seeking. One, a $250 million loan, would come from money Congress authorized in 2005 for clean energy projects. The first loan guarantee under the program was made to solar company Solyndra last week.
The second loan Tesla is seeking, $450 million, would come from $25 billion Congress authorized in 2007 for electric vehicle technologies.
The Energy Department has not granted any loans under that program and has been criticized for moving slowly. But the energy secretary, Steven Chu, has said he plans to distribute some of the money in coming weeks.
Tesla is also financing the development of the Model S with deposits from people on the waiting list, who can pay $40,000 to reserve one of the first 2,000 cars or $5,000 for later cars.
For those who are worried about what will happen to their deposits if the car is never produced, since the money will be spent on development and not held in escrow, Mr. Musk said: "The worst-case scenario is they would lose their money. They are at risk."
Still, he said: "This car will be manufactured, it will come to market. You should have zero doubt about that."

Tesla unveils electric saloon that it says will be 'luxury green car of choice'

Times Online
March 27, 2009

Tesla Motors has finally unveiled its Model S, an electric saloon car which, it says, will become the environmentally friendly luxury car of choice and help the American car industry to wean itself off foreign oil.
The Model S, billed as the world's first mass-produced, motorway-capable electric car, can travel up to 300 miles on one charge. Prices will start at about $57,000 (£39,000) in the US.
At the launch in Los Angeles, Elon Musk, Tesla's founder and chief executive, said that he aimed to have the car rolling off assembly lines by 2011. The company plans to produce 20,000 cars a year.
However, Tesla has yet to secure finance for the project. It says it is confident of negotiating a $350 million US government loan from the $25 billion bailout package approved by the Department of Energy last year. The government fund is intended primarily to help struggling carmakers to make more fuel-efficient cars.

Mr Musk said that Tesla was also close to signing a deal to build a manufacturing plant in Southern California.
Last year, after delays and price rises, the company released its breakthrough two-seat Roadster model, which is based on the Lotus Elise and is manufactured in Britain. The $109,000 electric sports car won plaudits for its stylish design but so far only 300 cars have been released. There are more than 1,000 people are on the waiting list.
The Model S, which seats five but can fit two children in backward-facing seats in the trunk, is powered by lithium-ion battery packs.
These can take a quick charge in 45 minutes or a full charge in four hours. The car's dashboard has a huge touch screen connected to the 3G network and goes from nought to 60mph in six seconds. Tesla said that although the price tag was high compared to other mass-market saloons, tax incentives, relatively inexpensive maintenance and the lack of fueling costs would make the car competitive.
Tesla said that the new model would become the "car of choice for environmentally conscious and discriminating drivers throughout North America and Europe". It expects to split initial sales between the two continents before expanding into Asia in 2012.
After Tesla has finalised a production site, it will take 24 to 30 months to begin production, Mr Musk said. The company has raised $186 million from investors, $55 million of it from Mr Musk, who made his fortune when PayPal, which he helped to found, was sold to eBay. Other investors include Google's billionaire co-founders, Larry Page and Sergey Brin.
Mr Musk said that he hoped the car would lead a new generation of vehicles that would reduce dependency on foreign oil.
"What we really wanted to show the car industry is that it is possible to create a compelling electric car at a compelling price. We hope the industry will follow our lead," he said.
General Motors is developing its own electric saloon, the Chevrolet Volt, which it expects to start selling in 2011 with a price tag of about $40,000. Toyota, Renault, Nissan, Mitsubishi and Daimler's Smart brand all plan to begin selling plug-in cars by 2011. President Obama has said that his administration wants to see a million electric cars on the road by 2015.
The unveiling of the Model S comes as American car makers suffer catastrophic sales but industry analysts are unconvinced that all-electric vehicles are the future of the US auto industry. They said that hybrid vehicles and low fuel prices could stymie the growth of the sector.
Jim Hossack, of the California-based company AutoPacific Consulting, said that Tesla's latest prototype was "something of a technical marvel" but questioned whether it could revolutionise the US auto industry. "The problem is our fuel price. If you're going to launch an electric vehicle you probably want to do it in a market where fuel prices are high," Mr Hossack said.

Guard Against Solar Cell Burns


Getting too close to the sun can singe your wings, investors in the solar-panel sector are sure to learn.
Beijing's pledge to subsidize up to half of the cost of installing solar panels raised euphoria in the sector to a new pitch this week. On Thursday, New York-listed shares of Chinese solar-cell companies surged. On Friday those gains continued in shares of solar-panel makers from Mumbai to Tokyo.
This short-term excitement belies some key long-term risks. Namely, the rush of companies entering panel production is reminiscent of the now oversupplied flat-panel and semiconductor markets. Companies in those sectors are losing money faster than they can raise it.
In Japan alone there are over a dozen manufacturers of solar cells and modules, including Sharp, Hitachi, and Honda.
The space is growing crowded. Sharp is building a plant that could increase production by as much as 69% when it comes online in about a year; Korean electronics giants Samsung and LG are looking to enter on a large scale; and India's Webel-SL Energy said Friday that it is investing in a second factory.
That's not to mention the many Chinese firms already in the game. By one count there are at least thirty listed solar cell and module makers globally.
None dominates. China's Suntech Power, Sharp, and Germany's Q-cell each control around 10% of the market, according to Macquarie Research.
That isn't yet translating into profits for Sharp. In the year ending next March, Sharp will lose over $150 million at the operating level on nearly $1.6 billion in solar-cell revenue because of flat demand and a 40% drop in yen-based prices, Credit Suisse forecasts. Red ink is expected also for the following year.
This week, China's Solarfun Power Holdings posted a fourth quarter loss of $61 million because average solar-cell prices fell 17% on soft demand and high inventories. Suntech too posted losses, and warned the current quarter could be worse than the last.
News of China's subsidy trumped all this. Solarfun's shares rose nearly 42%, and Suntech's 43%. Elsewhere, Webel rose 11%, and Hong Kong's Solargiga Energy jumped 21%.
But this sensitivity to subsidies can also bite. In Japan, nearly 90% of demand is for residential use and extremely sensitive to installation costs. When photovoltaic subsidies ended there in 2006, sales nose-dived 27% the next year, Macquarie says.
This is one investment best made with a thick layer of protection.
Write to James Simms at

Webel-SL Energy to Start Second Solar Panel Plant


NEW DELHI -- Webel-SL Energy Systems Ltd. Friday said it is investing around 1.8 billion rupees ($35.7 million) to build a second factory in eastern India to manufacture solar photovoltaic cells as it seeks to tap into rising global demand for clean energy.
"It (the new factory) will be operational within a month," Ambarish Bangur, Webel-SL marketing manager, told Dow Jones Newswires by telephone from Kolkata, where the company is based.
The new plant is being constructed on the outskirts of Kolkata and will increase Webel-SL's annual manufacturing capacity to 42 MW from the current 12 MW, Mr. Bangur said.
Webel-SL now generates about 95% of its total sales from exports to the U.S., Europe and Australia, he said, adding: "We get only 3% to 5% of our sales from India."
But he said also that the company is witnessing rising local demand, helped by an increasing focus on renewable energy in the country.
On news that China plans to subsidize up to 50% of the installation cost of rooftop solar panels, Bangur said that "China is a big potential market," but the company has no plan to set up a factory there.
"Our products are 10%-15% cheaper than those made in Europe," he said. "If there is demand, we can compete with other companies in China by exporting from India."
Write to Santanu Choudhury at

'More action' on carbon cuts

Published Date: 28 March 2009

THE Scottish Government has been told more action is needed to reach its targets for reducing carbon emissions.
The demand came despite transport minister Stewart Stevenson announcement that he was bringing forward the target date for 50 per cent reductions from 2030 to 2020. Mr Stevenson made the announcement at an international climate change conference in the Scottish Parliament yesterday.The conference was organised by Holyrood's Transport and Climate Change Committee, but its convener, Green MSP Patrick Harvie, said that the minister needs to go much further.He wants binding annual targets to be brought in immediately as part of the Scottish climate change bill which is currently being put through parliament.He pointed to the work being done by the government of the Maldives Islands, which had a representative at the conference.The Maldives are facing a catastrophe if sea levels rise and its government has introduced immediate carbon emission cuts.

A green future where you can borrow cars and drink rainwater

Alok Jha
The Guardian, Saturday 28 March 2009

A low-carbon economy will be the culmination of thousands of decisions by governments, businesses and individuals about how we choose to balance environment and economy. There isn't one correct future but many, with each detail in each country dependent on the will of its people.
One thing is certain, though. Anyone concerned about having to give up their modern lifestyle for an austere existence can rest easy. The big differences between now and the low-carbon future will not be the way the world looks or what we will be able to do in it, but how it is arranged.
The biggest hurdle is electricity. Three-quarters of our global electricity needs come from burning fossil fuels. The low-carbon future will demand that none of that electricity emits carbon dioxide. So every gas or coal-fired power plant, of which there will be many in China and India, will have carbon-capture technology to trap and store CO2 underground. Renewable sources including wind, tide, wave and sun will, through investment in basic research in the coming decades, be commercially viable. Far from being forbidding installations belching out carbon dioxide, renewable power stations will be smaller, emit no CO2 and tap into near-limitless supplies of free fuel.
Clean electricity will have a knock-on effect on the other modern carbon nasty - transport. When electricity is cheap and clean, there is no reason not to use its power as much as possible. Electric cars, buses, lorries and high-speed trains will move us and our goods, yet make no contribution to global warming. Though mass public transport will be the travel mode of choice, personal cars will remain. You might not own one yourself, instead borrowing from clubs when needed. By planning towns around pedestrians and investing in cycle lanes, local councils will encourage travel under two miles to be under your own steam or by hydrogen buses.
Flying will be a problem. Improved aerodynamics, lighter aircraft and mixing biofuels into jet fuel will bring down the carbon cost of air miles. Carbon reductions in energy production and road transport will mitigate some of the rise in emissions from the growth in flights in China and India, but environmental campaigners will not be satisfied. Expect punishing taxes on plane tickets, tied to their carbon cost, to discourage flying unless there really is no alternative. In these situations, a personal carbon-rationing system, linked to national CO2 emissions targets, will allow individuals to emit a certain amount of greenhouse gases into the atmosphere.
But the number of long journeys, particularly for work, will drop dramatically as high-speed internet connections enable high-quality video conferences and easy communications for people on different sides of the world. Many people will stop commuting to their offices or factories, preferring to work from home.
Homes might look the same, for nostalgic reasons, but will be fundamentally different. Bricks coated with solar paint will be held together with cement that soaks up CO2 from the air around it. Triple-glazed windows will reduce the need for heating in winter and cooling in summer.
Only the most energy-efficient fridges and washing machines will be available to buy while LEDs in lamps and displays will turn electricity into light efficiently instead of wasting most of it as heat. Automatic controls will warm rooms only when needed and switch appliances and lights off when they're not needed.
Our throwaway culture will disappear. By encouraging people to re-use as much as possible, less waste will end up in landfill and the carbon in our possessions (the stuff emitted to make our clothes, toys or furniture) wil not be wasted. Products will be made to last and, when they come to the end of their useful life, be repaired rather than thrown away. Packaging will be virtually nonexistent and, where it exists, will be recyclable or compostable.
People will use water more carefully. Rain will be collected from home and office rooftops and filtered using carbon-free electricity so that it is drinkable. Any water drained away in a building will be recycled and treated locally to wash clothes or flush toilets. Bottled water will be banned.
Food will come from local farms or factories to reduce the carbon cost of transport. Meat lovers, because of their high-carbon diets, will have to use up their personal carbon rations whenever they bite into a steak or else make sure their food comes from local, sustainable farms that produce meat artificially.
Locally-produced electricity will also play a big part in keeping homes carbon free. Solar thermal panels, community-based combined heat and power plants running on carbon-neutral wood chips, micro wind turbines and ground source heat pumps mean that local districts won't need all their power from today's centralised power stations. Local heat and power networks could even feed into the national grid during times of great demand.
This is one of many visions for a low-carbon world in 2050. It seems a long way off and whether we get there depends on decisions made over the next few years.

It should be the environment and the economy, stupid

In the last part of our series on fixing the financial crisis, we look at how green policy can save the planet as well as economies

Terry Macalister
The Guardian, Saturday 28 March 2009

Hopes that Gordon Brown and other world leaders would solve the financial crisis and global warming through a series of "green New Deals" are fading faster than solar power on a rainy day.
The vast bulk of new public spending announced in global economic stimuli seems largely "business as usual", with major cash injections being directed towards banks and car companies rather than renewable energy firms.
Some countries - notably the US and China - have been more adventurous, while wind energy and other sustainable technologies certainly stand to gain from wider ministerial efforts to unlock financial lending. But the air in recent weeks has been thick with the sound of "green" schemes dropping off the corporate agenda at top firms, such as Shell, rather than the gentle hum of increased activity.
And despite a barrage of green rhetoric, Britain has only committed £1.5bn to sustainability as part of its £25bn reflationary package, less than a third of France, a sixth of Germany and 100 times less than China, according to analysts at HSBC Bank.
Barack Obama is heavily promoting solar and clean technology, but even the popular new US president is struggling to convince Congress that his green plans will build wealth instead of destroy it. What more could G20 ministers do now to rebuild their economies in a more sustainable way?
1 The UN should set up a renewable energy agency to promote sustainable schemes and match the atomic energy agency. There also needs to be a UN climate change commissioner who would encourage governments to present a coherent green message across all aspects of public policy, from housing to healthcare, and not just specifically on the economy. A network of low-carbon innovation centres across key developing countries should be funded by G8 members, which could develop local and small-scale field trials on biomass and other sustainable energy projects. A similar system has already successfully been used in agriculture.
2 Major banks have been nationalised by governments around the world, providing a perfect opportunity for ministers to steer lenders in a new direction. Private money needs to be siphoned into a sustainable future through more forward-looking banks and finance houses. These key institutions need to abandon their sole focus on short-term profit maximisation in favour of a long-term, non-profit performance view. The Irish government has already indicated it will require ring-fenced programmes for investment in renewable energy from the banks it is supporting.
3 Much more public money needs to be pumped into research and development of new energy sources as well as directly into large-scale renewable projects. Industrialised countries should encourage the development of massive solar farms being constructed in places such as northern Africa with huge long distance and subsea cables allowing them to pump electricity to "smart grids" around continental Europe and beyond. The intermittent nature of this power should be backed up by smarter demand management, special power storage - and nuclear. There should be a relentless drive to electrify the transport network - with a timetable for discontinuing the operation of all petrol-driven private cars, buses and other forms of public transport.
4 Energy efficiency is one of the quickest and most important ways of dealing with the impending power crunch. Financial incentives should encourage people to lag the loft, put in draught-proof windows and use condensing boilers - or better still heat pumps - along with compact fluorescent lamps and other measures. When the property changes hands, the outgoing homeowners would have to prove they had taken all steps to make the property energy-efficient - or face penalties. Industry has been taking steps to improve the amount of energy it uses to produce a certain amount of goods, but Britain and others could follow Japan which has made enormous steps forward to improve its industrial efficiency.
5 Carbon taxes should be used to restructure the EU's emissions trading scheme and ensure a higher and more stable price for carbon, which would drive change across the economy.The scheme needs a system of carbon tax-based floors and ceilings to make it function more effectively. There should also be more auctioning of the pollution certificates so the price can be driven up from its existing low level of €11 per tonne, which has undermined the system and put a brake on the clean development mechanism used to fund new clean energy schemes in the developing world.

The Carbon Cap Dilemma

Entergy's CEO on the politics and economics of tackling global warming.


On the one hand, environmentalists claim that climate change is a "planetary emergency," perhaps the greatest threat ever to face humanity. On the other, nuclear energy is still verboten in the green catechism -- despite the fact that it provides roughly one-fifth of U.S. electricity, all of it free of carbon emissions. And without more nuclear power, it is nearly impossible to see even the glimmers of any low-emission future.
Zina Saunders
J. Wayne Leonard, chairman and CEO of Entergy Corp., one of the largest U.S. energy companies and the No. 2 generator of nuclear power, is no stranger to the many contradictions of American energy policy. "Everybody's gums are still bleeding from the '70s," he says of nuclear power, noting that today's technology is far superior to its Three Mile Island vintage.
The avuncular Mr. Leonard, who lives in Louisiana, made his name in nuclear, and over the last nine years as Entergy CEO he has achieved the highest total shareholder return in the nuclear power industry. But now his thoughts are concentrated on more lasting matters -- namely, his deep-seated concern about climate change.
Does he think nuclear energy has a larger role to play in that effort?
"Is it nuclear?" Mr. Leonard asks in Entergy's D.C. office. "Are you really going to mandate nuclear? I don't think so. I mean, mandate private businesses at the kind of prices we're taking about, and the kind of risks? That's pretty tough to do. You'd have to turn all of us into France" -- 79% of its electricity is nuclear -- "and have a government-sponsored program. I don't see that as consistent with what made this country into what it is today."
Mr. Leonard thinks like an economist. He talks about "efficiency" and "maximizing consumer surplus" the same way other utility executives talk about rate schedules and voltage. The most important thing the government can do on climate change, in Mr. Leonard's estimation, is to change the incentives for producing -- or, not producing -- carbon. His answer on the role of nuclear was revealing about his mentality: Set the price, and market forces, not government, will make the decisions.
"We see ourselves as a market economy, and that's created great wealth for society over time," he says, "but we're a market economy that doesn't have price signals for CO2."
Entergy belongs to the swarm of major energy companies that are -- contrary to type -- practically begging Washington to create a cap-and-trade program. Mr. Leonard supports President Barack Obama's plan to slash emissions 80% by 2050. It sounds strange: Lobbying the government to tax your products is generally not taught in business school.
But then, a lot of companies stand to make a bundle off cap and trade. Once Congress puts a ceiling on emissions, and then allows businesses to sell any of its extra allowances that stand for the right to emit, it is essentially creating the world's largest commodity market -- in carbon-backed securities. These will be extremely valuable, and everything comes down to how the government chooses to distribute them.
Mr. Leonard thinks the allowances should be auctioned off, rather than given away. So does the White House. Then the billions in new revenues that cap and trade would raise every year should be returned to the public. "Ideally you want to recycle it all, give all the money back," he says.
That's the purist's view on cap and trade -- and it puts him at odds with many of his peers at big coal-fired utilities like Duke Energy and American Electric Power that emit the most carbon. These companies signed on in the expectation that the allowances would be handed out at no charge. But economically, that is the same as selling them and giving the money to businesses -- i.e., as subsidies and corporate welfare. Mr. Leonard uses more diplomatic language: "Everybody's got their kind of own self-interest out there that they're tending to promote, once you get behind it."
It would be fair here to note Entergy's own self-interest: Only about 7% of its portfolio is coal, and the nuclear industry stands to benefit as much as any "green" business from a carbon crackdown. Then again, if Congress does create cap and trade, expect the next populist outcry to be for a windfall profits tax on nuclear.
Mr. Leonard acknowledges, though, that coal and other energy companies -- and their customers -- have legitimate reasons to worry about cap and trade: "No utility CEO likes to raise rates, and that's what would happen. Your rates go up no matter what," he says. And even if the government returns every dime of climate revenues to ratepayers, "That's a painful thing for utilities to have to endure, because angriness comes toward you, and somebody else gets the goodwill." Giving out the allowances, he does concede, could help the cushion the blow.
On pure economic grounds, Mr. Leonard seems to prefer a straight carbon tax, which would be simpler and more efficient than cap and trade. But he also notes that "the political will to go the tax route . . . is just not there. Nonexistent" -- namely because the use of the word "tax." The key, he says, is to design a cap-and-trade program that will "simulate the same thing a tax would do." That is, to achieve the increased energy prices essential to the success of cap and trade.
Mr. Leonard does evince a certain . . . uneasiness with the direction of climate politics. "The old adage of 'think globally, act locally' -- it still works," he says. "But with climate change, for it to really be effective, we have to take that thought much more completely and much more deeply than probably we've ever really thought about an issue."
He notes China's breakneck construction of conventional coal plants. China has already surpassed U.S. coal capacity and is on pace to double it sometime in the middle of the next decade. The U.S., he says, could close down every single coal plant immediately and that would be "working to a global solution, acting locally. But that wouldn't do much good in the scheme of things," because atmospheric CO2 concentrations would continue to rise as China continues to expand.
"We go to zero emissions in this country, and if China doesn't follow us, we're nowhere. . . . We've just ruined our economy, and we're nowhere," Mr. Leonard says. "We make mistakes here," meaning a poorly designed carbon system, "and we have a real problem." He goes on, "We talk about that we should lead, then people will follow, but that's kind of" -- he pauses -- "silly. China's not going to follow us because we're the United States. . . . You say, 'Shut down your plants' -- well, that's going to be a short conversation. They've got $2 trillion invested in their plants and they still aren't feeding all their people." He adds that "If we were China, we wouldn't shut our plants down either."
Mr. Leonard argues that the best way to square these circles is to channel U.S. basic research dollars into the technology that can retrofit existing coal plants with carbon capture technology. Most current funding is devoted to second-generation systems that are still 10 or 20 years away from commercial deployment, at best. "We should spend 99% of our time on the problem that we have today, and it ain't going away," he says, referring to coal emissions. He also sees retrofit technology as a realistic way to curb Chinese emissions: "They're going to follow because we can offer them something."
Mr. Leonard worries, too, that Congress may make matters worse as it takes up climate change legislation this spring or summer. One proposal that enjoys wide Democratic support is a "renewable portfolio standard," which would mandate that utilities generate a certain percentage of their electricity -- as high as 20% -- from renewable sources like wind or solar. Nuclear, naturally, does not qualify.
Mr. Leonard points to yet another energy policy contradiction, which is that a portfolio standard -- which Congress would impose on top of cap and trade -- would actually increase carbon emissions. Power companies would be more likely to use renewables to replace sources like natural gas, which is relatively lower in carbon but also expensive, rather than to displace coal, which is cheaper and more abundant but also produces more emissions.
While Mr. Leonard says -- repeatedly -- that Entergy has nothing against solar or wind, "Our view is that government shouldn't be in the business of picking technologies. . . . And we're moving down a path where we're mandating renewables instead of a price signal to do it. We're . . . moving toward a planned economy by mandating a technology. Well, if we're a planned economy, if we're mandating technologies, then we don't have a whole plan."
"The focus," Mr. Leonard reiterates, "should be on developing the cap-and-trade program: Setting the amount of reductions, where we want to be, setting the price signal that works so that it's not so high that it shuts down coal plants prematurely, and that's not so low that it becomes a loophole and people don't end up doing anything -- and all we end up doing is taxing people, and God knows what the government will do with that money."
"This needs to be done with a fine pen to get it right," he adds.
Still, the government is not exactly run by omniscient technocrats. Does he believe that Congress -- with its entrenched constituencies, its own self-interest, its many antibusiness biases -- can actually create a climate system that is as sensitive and efficient as he envisions? That is, can the political class actually write the same bill that economists would write?
"That is really the tough part," Mr. Leonard says. "The trade-offs are not simple. . . . With a well-crafted bill, the market will make those choices. Or you can do it with a planned economy, and hope you get it right."
We may find out.
Mr. Rago is a Journal editorial page writer.