The climate is changing. The earth is warming up, and there is now overwhelming scientific consensus that it is happening, and human-induced. Many are agreed that climate change may be one of the greatest threats facing the planet. Recent years show increasing temperatures in various regions, and/or increasing extremities in weather patterns.
At the recent Coatings Summit held in Washington DC from January 18-19, Chad Holliday, former Chairman and CEO of DuPont, and current Chairman of the Bank of America, presented “Corporate Environmental Responsibility and Sustainability” during which he discussed how to match and manage environment, technology and economy issues effectively.
According to Mr. Holliday’s climate change dashboard there are four key points to understand the climate change issue. First, science says that climate change is indeed occurring and is caused by human activities and poses significant risks for, and in many cases, is already affecting a broad range of human and natural systems. Second, it is up to humans to limit the magnitude of future climate change by adopting a mechanism for setting an economy-wide carbon pricing system. The third point calls for adapting to the impacts of climate change by moderating potential damages, taking advantage of opportunities and/or coping with the consequences. Lastly, informing effective decisions around climate change entails making sure leaders stay informed.
Environmental issues are close to his heart, and I recently had the chance to talk about them with Mr. Holliday, including his work with the American Energy Innovation Council, a group of business leaders that includes Bill Gates, whose task it is to develop viable alternative energy sources.
Coatings World: How and when did you first become a steward of the environment?
Chad Holliday: It all started at DuPont. We were the world’s leader in making chemicals that produced fluorinated gases, called CFCs—the real culprit responsible for the depletion of the ozone layer—well before the time I began my tenure as CEO in 1999. DuPont understood the issue, the Montreal Protocol, which is an international treaty designed to protect the Ozone layer (see side bar on page 53) went into effect and DuPont developed substitutes for CFCs, which formed the core of a half-dozen new business lines.
During this process, through talking with DuPont’s own climate scientists as well as some of the best scientists in the world outside of DuPont, we discovered that the problem of the Ozone layer was not the only threat the environment faced. DuPont became sensitive to this and decided we wanted to get out ahead of the curve and reduce our greenhouse gas emissions and we did, by more than 70 percent during my tenure as CEO.
So it was through that experience at DuPont that I first became aware of the issues surrounding global warming and climate change. I’m currently serving on a committee of the National Academy of Scientists. It’s called America’s Climate Choice. It’s a request by Congress to make recommendations. We are still in the process of completing our study.
CW: If the science is there to back up the climate change claims, why are so many people reluctant to accept this reality?
Holliday: It’s very hard to debate the fact that the planet is warming. That is a scientific fact. You can’t debate that greenhouse gases have contributed to that. What becomes much more difficult to understand is the ultimate impact of climate change and how quickly it will come. That’s where I think there is a lot of room for legitimate disagreement. With all the other demands governments and businesses have now, it’s very difficult to get them to work on something we don’t know exactly in concrete terms how bad it’s going to affect us and when it’s going to come. Some still believe there will be something magical to come along and reverse the current climate trends. You can never say it will never happen, but the probability is against us that we’re going to get lucky.
CW: What role are non-governmental organizations (NGOs) and governments playing?
Holliday: Today NGO’s are much more open to partnering with businesses than they ever have before because they see business can be part of the solution, and not just part of the problem. That’s not 100 percent of NGO’s but it’s a significant number and I think that is a very positive sign. On the government side, the astute ones understand that the solutions to these problems could be some of the biggest markets we’ve ever seen. There really are opportunities to create jobs and help their countries advance. So the really astute ones are carving out their niches where they think they can play. It’s a lot easier to do when you’re a real small country. Germany is doing a nice job and there has been some positive progress in Spain. If you look inside the U.S., as much as we like to criticize California, they’re a leader here and whether they’re ahead of the curve and going to have a problem, I wouldn’t speculate on that but clearly they’re doing things the rest of the country hasn’t done yet.
CW: No major U.S. environmental legislation has passed through Congress with unemployment above six percent. As of January 2011, the U.S. Bureau of Labor Statistics reported 9.8 percent unemployment. Knowing Capitol Hill’s reluctance to pass environmental legislation during periods of high unemployment, how optimistic can we be that steps toward real change will be enforced at the federal level?
Holliday: I think it’s unlikely. I don’t think we’re going to have a major environmental bill anytime soon. Never say never, but unfortunately I think that is the case. I think clearly we have a budget issue. And we’ve got to find a way to live within our means much better than we’re living today. However, it doesn’t mean we won’t have an energy bill in the near future. I think that could be a lot different. Some very recent gallop polling found that the issue of energy is really on the minds of Americans. Particularly when it comes to the security of energy sources and the cost of energy. Energy concerns are more immediate, while the environmental impact won’t be felt until farther down the road.
CW: What are your hopes from Capitol Hill moving forward?
Holliday: What I hope they do is fund additional research for breakthrough energy technology. This should be a natural area for the U.S. to be a leader in. I see so many of these new technologies such as hydrogen fuel cells for example for transportation. As I looked at that technology six or seven years ago I was very doubtful that the cost could come down enough to make a difference but I just saw some data in the last week that says this will not be the answer to everything, but in some situations it’s clearly a good answer to problems. That is just one example of how if we spent the money on research we could make a difference.
CW: Describe the role the American Energy Innovation Council is playing.
Holliday: The American Energy Innovation Council evolved from the idea that we know how hard it’s going to be for government to impose a tax on carbon or a cap and trade. We concluded if we could make a clean energy that is cheaper than the current sources we won’t have to worry about that. People will naturally go to it. So that’s really how it started. Rather than first say if it could be done it would have already been done, which is the kind of answer a lot of people give, we looked at the issue and said we really haven’t tried seriously to come up with viable alternative energy. The members spent a lot of time together and it wasn’t just a bunch of staff people doing the work. We sat down, talked about it and concluded that there is a very reasonable chance that we could have an energy technology breakthrough here and so that is why we proposed the funding to President Obama. He’s not funding as much as we suggested and of course it’s not passed Congress yet, but I think we’re encouraged. This doesn’t have to be a bi-partisan issue.
CW: What kind of funding are you receiving from the government? How much will it take to make real change?
Holliday: We estimate we’re spending about $5 billion a year on energy research at the government level. We believe it needs to be $16 billion. We need an additional $11 billion and we need to hold that for about a decade and we need to be sure the funds are spent wisely. The board of the American Energy Innovation Council can make sure of that. Equally important is the handover to private industry. We believe that as newly developed technology reaches the commercialization stage, private industry needs to come in and put their money into it, which lowers the taxpayer burden but also gets them more committed to making it a success. So that’s one of our key recommendations is we have what we call a prototype development facility but that is where private industry and the government would partner.
CW: What is your main argument to government to make them take this issue seriously?
Holliday: If I was making it today I’d say look what’s happening in North Africa, and look at how unstable the world is and look how dependant we are on all these foreign sources of energy. No one can guarantee those sources are going to flow forever. From that standpoint and as prices of commodities, including energy, start to run up, we need the security of predictable cost that we can live with and this is all with out even mentioning the environmental impact. I think there is a pretty good case of convincing people that spending $16 billion per year is not going to be a waste. We’ve also discussed this as a national security issue. It’s a much softer argument to make, but as I look at it there’s about $60 billion that the government spends on defense research today. So if we take $11 billion out of that to get us to our goal of $16 billion, they still have $50 billion left. It’s not like we’re asking them to cut back to nothing. I think that investigating alternative energy sources might be a better deployment of defense research spending to see if we get some breakthroughs.
CW: What are some possible alternative energy technologies the American Energy Innovation Council is investigating and how far away would they be from implementation? Is it possible to get clean, cheap energy?
Holliday: For the technologies that are really cheaper than the ones we have today and are really clean, we’re talking a decade. In addition to hydrogen fuel cell technology, obviously advances in solar energy would make a big difference, bio-fuels from non-food sources such as waste cellulose and nuclear energy clearly could be a piece of the answer. In our request for funding from the President we were very careful not to pick which ones would or would not make it. Wind energy could also be a piece of the answer but again have to find a way to get the cost down. There is one project ongoing now that does not use wind towers with the three big blades to source energy. This project uses something that looks more like a jet engine and it’s much more efficient than the three blade model currently in production. It’s not perfected yet but is one example that there’s some real hope here on for a breakthrough.
CW: As the former head of DuPont, you have a great understanding of the coatings industry. How do you see the climate change and energy issues affecting business strategy in the coatings industry?
Holliday: My advice to the coatings industry would be to take advantage of all the energy savings and energy efficiencies that are available today. I think one of the biggest mistakes is there are good projects that even if you don’t believe there will be a cost to carbon make good sense for your company today. I would implement those. I think that’s smart and it’s amazing how many people haven’t done so yet. Second, I would look at my markets and see which markets really do have a high cost impact to the environment and I would say those would be my growth markets in the future. I would also be thoughtful about my supply chain and the environmental impact it might have in the future. Third, I would ask if there is any way I could make coatings more efficiently in terms of energy expenditure with less green house gases. I wouldn’t think about it in the typical large volume applications, but I think there could be some specialty applications that make sense. The fact is we’re going to need coatings and in the long run this shift toward a more environmentally friendly future will be a plus for the coatings industry.
Group urges scale-up in investment, systemic reforms to create jobs, address national security, solve environmental challenges.
A group of America’s top business executives released in June 2010 a plan to make America a global leader in energy technology innovation, and in meetings at the White House and with Congressional leaders called for urgent action to begin the national transition to clean, affordable and secure supplies of energy.
The American Energy Innovation Council (AEIC)—whose members include Bill Gates, chairman and former chief executive of Microsoft; Norm Augustine, former chairman of Lockheed Martin; Ursula Burns, chairman and chief executive of Xerox; John Doerr, partner at Kleiner Perkins; Chad Holliday, chairman of Bank of America and former CEO of DuPont; Jeff Immelt, chief executive of GE; and Tim Solso, chairman and chief executive of Cummins — said in its report, “A Business Plan for America’s Energy Future,” that reforming and strengthening U.S. investment in energy innovation is the most critical element to securing America’s future.
“The world faces many challenges, but none more important than taking immediate and decisive action to develop new, inexpensive clean-energy sources that avoid the negative effects of climate change,” Gates said. “Low-cost clean energy is the single most important way to lift poor countries out of poverty and create more stable societies. The whole world would benefit from this, and the United States can and should lead the way. The time for action is now.”
“We must reinvent our energy future,” said Chad Holliday, who serves as AEIC chairman. “A giant leap in energy technology investments and reform of our current system can make America a global leader in what will be the largest new market of the 21st Century. We have seen huge dividends from similar American investments before—in information technology, defense technology and medical technology. But up until now, energy investments have gotten short shrift. That has to change if we are to control our energy future. This has to be at the top of America’s agenda.”
The American Energy Innovation Council plan contains five recommendations:
1. Create an independent National Energy Strategy Board.
2. Increase annual investments in clean energy research, development and deployment by $11 billion, to $16 billion per year.
3. Create Centers of Excellence in Energy Innovation.
4. Fund the new Advanced Research Projects Agency-Energy (ARPA-E) at $1 billion per year.
5. Establish a new Energy Challenge Program for large-scale demonstration projects.
The full report and supporting documents and other materials can be found at: www.americanenergyinnovation.org.