A Trillion is a Thousand Billion? Why Wasn't I Informed of This?

With the title of this post, I am paraphrasing another favorite New Yorker cartoon (again).

As I toil away trying to raise a million here or a million there for some great cleantech companies (see the side bar of this blog), PetroChina made its debut on the Shanghai stock market, tripling in value, and becoming the world's first trillion-dollar market cap company.

Certainly, PetroChina cannot qualify as a Cleantech company, despite some notable important activities. So this boom is just a reminder of the importance traditional energy continues to play in our global economy, and the extent to which demand for it is now driven by China and other developing nations.

I guess investors were not concerned by the strong non-market forces which affect the stock price. Chinese regulators just announced a delay in the expected lowering of restrictions on capital flows from mainland investors. These restrictions have driven an unsustainable difference between the Shanghai-listed shares and Hong Kong-listed shares of several comapnies.

Also (coincidentally?), Chinese regulators raised the mandated price of retail gasoline last Friday by 10%. These higher prices substantially aid PetroChina's financials, since they buy crude on the world's open market, but sell refined gasoline into a price-controlled market in China.

With all these non-market influences, it is difficult to see how this trillion-dollar threshhold could be long maintained. (This also raises broader questions about goverment fiat in China which I intend to address in a separate post.)

But for the time being, a new milestone deserves recognition and reflection. Interestingly, we at Bessemer Venture Partners are forever tied to the world's first billion dollar market cap company. In 1901, J.P. Morgan purchased Carnegie Steel, merged it with Federal Steel and several other companies to form U.S. Steel. The combined company's $1.4 billion capitalization set a new mark.

Henry Phipps, a childhood friend of Andrew Carneigie, was the second-largest shareholder of Carnegie Steel. He had contributed to Carnegie Steel's success by being the first to commercialize the Bessemer steel-making process in the U.S. Phipps' share of the acquisition proceeds were worth about $67 million...in 1901 dollars! Subsequently, Phipps created Bessemer Trust and Bessemer Securities Corporation to manage these funds. The high-risk group of BSC made private equity and venture capital investments throughout the century, and was spun off in 1981 as Bessemer Venture Partners. (Thank you, Henry Phipps!)

How little the world has changed over 106 years and three orders of magnitude. From steel for the booming U.S. economy to oil for the booming Chinese economy. But do these milestones often indicate a peak? According to the Wikipedia entry, U.S. Steel was at its peak influence at its creation. Competition, commoditization and new technologies immediately started chipping away at its dominance. Does this new 13-digit milestone mark an apex for PetroChina as well? For oil itself? Will Cleantech innovations make massive national oil conglomerates as irrelevant as early 20th century steel conglomerates? For an answer, check back here in 106 years.

Gender Schmender

GigaOm's Earth2Tech (what does that mean?) notes that there are too few women in Cleantech. To help spotlight some of the best, they have posted their list of the The Top 10 Women in Cleantech. While I have to agree the raw numbers of female executives and investors in the space should (and will) go up, we should reflect on what an impressive list of individuals this is regardless of gender. Having met a number of these women in person, I'd say they could take on the male Cleantech all-stars any day. With leaders like this, expect more talented women to be attracted to the field quickly.

Congratulations to my ConsumerPowerline co-investor and fellow Board Member Diana Propper de Callejon of Expansion Capital for making the list at #4. By the way, Bessemer first got to know ConsumerPowerline due to the insight and persistence of BVP Analyst Sarah Tavel, herself no slouch:


Thank goodness for the talented women in Cleantech!

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A Declaration of (Energy) Independence

When in the course of human events it becomes necessary for one people to displace the hydrocarbon bonds which have fueled them (and were provided by another) and to assume from the recurring power of the earth and sun, the sustainable and independent energy which the Laws of Nature provide them, a decent respect to the opinions of the men vested in the established order requires that they should declare the causes which impel them to the separation.

We (should) hold these truths to be self-evident, that all generations are created equal, that they are endowed by Creation with certain unalienable Rights, that among these are Life (through air, water and a stable climate), Liberty (from foreign powers), and the Pursuit of (sustainable) Happiness. -- That to secure these rights, Governments are instituted among Men, deriving their powers from the consent of the governed, but also owing a responsibility to the to-be-governed, -- That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter it, and to institute new Governmental Principles and Forms as to them shall seem most likely to effect the Safety and Happiness of their and future generations.

Prudence, indeed, will dictate that Government Principles long established should not be changed for light and transient causes; and accordingly all experience has shown that the common good has been more disposed to be subordinated to private interests by Governmental activism. But when a long train of externalities, driven by private economic choices, and leading invariably to reduce the common good, are not being righted by an inactive Government, it is their right, it is their duty, to throw off such inactivity and to provide new Principles for their future security.

Such has been the patient sufferance of these United States (since at least 1973); and such is now the necessity which constrains them to alter the Principles of their Government. The history of the present government-energy complex (culminating in the current administration) is a history of repeated denials, delays and missed opportunities, all having the direct result of mortgaging the futures of the children of this country. To prove this, let Facts be submitted to a candid world.

We have based our development far too much on burning hydrocarbons, releasing global warming gases into the general atmosphere at unsustainable rates.

We have imported energy sources in massive quantities from lands hostile to our goals and indifferent to our values without regard for the repercussions.

We have obstructed international efforts to lead the global economy to more sustainable methods of economic growth.

We have refused to make minor trade-offs even in exchange for large improvements against these problems, and we have allowed our government to remain inactive.

We have allowed men at the ends of their political careers to achieve short-term personal gains by refuting that these problems even exist.

We have allowed environmental symbols to over-shadow true environmentalism and to scuttle possible common-sense compromises.

We have been discouraged by the short-term costs of alternatives, without sufficiently considering ways to lower those costs or the offsetting long-term costs of the status quo.

We have instituted inconsistent policies, designed to react to short-term outrage without laying the foundation for long-term change.

We, therefore, the citizens of the united States of America, appealing to the Supreme Judge of the world for the rectitude of our intentions, (should), solemnly publish and declare, That these united colonies are, and of Right ought to be set on a path to be Free (of established vested interests) and (Energy) Independent States; and that as States on the path to this Freedom and Independence, must take full power to establish new sources of Energy, discourage waste, internalize externalities, encourage long-term technological development that will eventually be free of governmental support, and do all other Acts and Things which conscientious States (and stewards for future generations) must of Right do. -- And for the support of this Declaration, with a firm reliance on the Truth of nature, the power of ingenuity and the ability to act in the common good, we must mutually pledge to each other our commitment, open-mindedness and Good Faith.

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The Prius Has Gone Mainstream

There have been many indications building up over the last year or so, but it is now clear to me that the Prius has gone thoroughly mainstream.

• Toyota announced recently that they have now sold over 1,000,000 hybrid vehicles worldwide. This still represents a tiny fraction of the cars sold over the same time period -- probably less than 2% even in recent high-volume years -- but it is a significant milestone nonetheless.

• Toyota made the move last year to broaden the Prius technology into other models, and branded the system Hybrid Synergy Drive.

• The long-standing California incentive that allowed Prius drivers to access the H.O.V. lane even when driving alone has now expired. Existing stickers are still valid, but no new ones will be issued. (My colleague and fellow blogger unfortunately discovered this the hard way.) The only way to get access to this privilege now is to purchase a used low-emissions vehicle with a sticker.
  

• And supply has finally caught up with demand. For years (especially in my hometown of San Francisco) interested buyers were met with long waiting lists and the prospect of paying the dealer above sticker price. But earlier this year, Toyota began introducing incentives to move inventory, as all other manufacturers must do. And we even can now see Prius televsion commercials for the first time (below).

But I am now truly convinced that the Prius has crossed the chasm (or perhaps jumped the shark.) Twice last week on my long San Francisco-to-Menlo Park commute (in my 2000 Jetta averaging just 25 mpg; more on that later) I observed aggressive lane changing and passing on the right by Prius drivers. The hybrid electric demographic is no longer limited to globally conscious and community-oriented drivers. The American Prius driver is starting to look like the rest of America. This is a good thing for the planet and the inevitable result of success. But it certainly dilutes the brand!

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Carbon Credits and Israeli Daycare

I apologize to my loyal reader for a long absence. But really, Who Has Time For This?

This week KQED's Forum produced an hour on workplace ethics, and toward the end of the show discussed the unusual behavior that can result from mixing ethical and economic incentives. The show discussed the oft-cited study of fines imposed by an Israeli day care center on parents who came late for their children. Surprisingly, the rate and duration of late arrivals increased markedly. The new hypothesis is that without fines, parents felt they were violating a social contract by being late and were reasonably responsible. Once fines were imposed, parents were likely to feel the entire social cost was captured in the "price" of the fine. They now made more purely economic decisions, being late much more frequently.

Are there any lessons to draw from this in the growing market for carbon offsets? Increasingly consumers are buying offsets from services like Terrapass, Carbon Fund and NativeEnergy. But are these offsets appropriately priced, and could this early market have adverse consequences on consumers' overall behavior?

Naturally, the first offsets are the cheapest. But in this ethics-linked market, the first to buy them are likely among the highest emitters of carbon, who could potentially do the most to limit their footprint without dramatic economic harm. Instead, they can buy cheap offsets (much cheaper, anyway than the world's median ton of carbon would cost to offset), and emit worry-free. Could putting a price on these emissions have unintended consequences? Might the small but growing handful of consumers who feel an ethical obligation to cut emissions simply pay the fine rather than change their behavior? Note that most credits do not actually adjust well to usage. Once I've purchased my sticker for the year, there is no further incentive to make the marginal choice to work from home rather than burn three gallons to make the round trip to the office. Ideally, I'd be subsidizing industrial carbon decreases AND shrinking my own footprint.

(I am working out an example of how carbon offsets might affect my pending decision about a new car. I will try to post the results shortly.)

Furthermore, in the day care study, the new proclivity to lateness continued even after the fines were removed. Apparently, parents assumed the cost of lateness had already been revealed. It's great if they aren't charged for it (free daycare!), but it is now an economic, not an ethical issue.

I do not mean to suggest carbon pricing cannot be an important tool in reducing emissions. Indeed, I think it is one of the most critical. But like any early market, structure and incentives are critical to success. Is it possible that while ethical concerns around carbon emissions are on an upswing, we should focus on those as incentives and abandon the pricing mechanisms until we can structure the mandatory cuts that increasingly seem likely?

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80 MPG Diesel Engine

One fascinating branch of cleantech innovation is the drive to create substantially more efficient personal transportation. Of course, the Prius, with its branded Hybrid Synergy Drive, is a marketing breakthrough. But there are a number of other exciting approaches out there as well, from cleaner diesel engines which by their nature are more energy efficient, to plug-in hybrids (one of my personal favorites), to all-electric vehicles which claim the equivalent of 135 or even 169 mpg, to very cost-effective advances in the traditional internal combustion engine. At Bessemer, we are keenly interested in all these approaches, since nearly one-third of all U.S. CO2 emissions come from the transportation sector. We are confident that by the end of the decade, the nation will have taken steps toward addressing transportation's impact on climate change, whether it be in the form of states winning the "controversial" right to regulate in their own jurisdictions, the long-shot suit against the EPA currently before the Supreme Court, the new Democratic Congress, or just the inevitable collapse of recalcitrant opposition in the face of the facts.

But amidst all this important work, I wanted to take a moment this holiday week to offer a humorous distraction on this topic. Apparently, there is an innovative entrepreneur in Arkansas I need to go track down. Now I wasn't there, and I didn't see, but I'm telling you as it was told to me.

A man and a contractor are making the trek to an isolated cabin in the woods outside Hardy, Arkansas. The contractor is to install a pre-fabbed shed on the largely undeveloped property, and he is towing it behind his truck on a long trailer. At the last intersection of their journey -- a turnoff from the paved highway onto a narrow gravel road -- the two decide it is best to leave the shed and venture ahead to make sure the whole rig can navigate the arduous path. Are the trees hanging too low? Can the rig turn around at the end of the road?

So the contractor jumps out of his truck, engine still running, to ride along with the man. The conversation goes like this:

Man: "You left your truck running."

Contractor: "Yeah, it's an old diesel and it has a hard time starting up. So it's best not to turn it off."

Man: "Well, it's going to take us 30 minutes or more to make the roundtrip. You're going to burn a lot of fuel."

Contractor: "Oh, it's okay. I get 70 or 80 miles to the gallon when I'm idling."

Now that's a creative inventor! Let's hope the next decade brings more compelling innovations in efficient engines than that!

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The Miracle of Efficient Lighting

My partner David Cowan has blogged on why he celebrates Hanukkah, even as an atheist. He also takes the opportunity to draw some analogies between the biblical story and lessons of entrepreneurship applicable today.

From my perspective, he missed two chances to extend the analogy. First, we must reference one of my favorite New Yorker cartoons of all time. (The New Yorker has asked that their cartoons not be republished without permission, so I link to it rather than post it.)

Second, there is an obvious Cleantech lesson, too. The efficiency improvement that Judah Macabee effected is roughly the same (8:1) as that between state-of-the-art LED lighting and the traditional incandescent bulb. I firmly believe that by the end of the decade 8:1 improvements in lumens per watt won't seem like much of a miracle. But it will be a a big part of how we keep the looming specters of increased emissions and global warming (scarier even than the Syrian army) at bay.

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