There’s no shortage of environmental and energy “think tanks” telling us how to wean society off fossil fuels and at the same time keep climate change from spiraling out of control. But Boulder, Colorado-based Rocky Mountain Institute (RMI), founded in 1982 by Amory and Hunter Lovins, arguably stands above the rest.
As Amory Lovins is fond of saying, RMI isn’t just a think tank – it’s a “do tank.” Over the years it has worked with big business and military organizations on ways to get the biggest bang for their energy buck with the least impact possible on the environment. Clients include utility Duke Energy and the U.S. Department of Defense.
Under Amory Lovins’ leadership, RMI has long pushed the “soft energy path” as superior to the hard, centralized approach we’ve relied on to date – that is, massive thermal power plants fueled by fossil fuels or uranium and connected by a network of long-distance, high-voltage transmission lines. The soft path, on the other hand, places value on diversity and decentralization of production, renewable energy sources such as solar and wind, and highly efficient use of the energy we do produce. A “negawatt,” as Lovins would point out, is cheaper to find than a megawatt is to produce.
Lovins stepped down as CEO of RMI in 2006, taking on the role of chairman and chief scientist and replaced by financial software executive Michael Potts, who held the top job for seven years. In July 2013, another leadership change saw Jules Kortenhorst take the reins. Kortenhorst brought a wide range of government, NGO and private-sector experience to RMI. Prior to joining, he was CEO of Dutch biofuels company Topell Energy. He led the philanthropic European Climate Foundation and between 2006 and 2008 even served as a member of the Dutch parliament. Earlier in his career, he held several positions at oil giant Shell and was a business analyst at McKinsey.
Just 18 months after becoming CEO, Kortenhorst brokered a deal that surprised and delighted many. RMI announced that it would merge with Carbon War Room (CWR), a non-profit organization founded by billionaire Sir Richard Branson in 2009. Led by former Costa Rica president Jose Maria Figueres, CWR was established to promote market-based approaches that can achieve dramatic reductions in carbon emissions. “The real barrier is slow adoption rates, not inadequate technologies or lack of opportunity,” said Figueres at the time of the merger announcement. “The alliance can expand pockets of innovation and rapidly bring them to scale.”
Corporate Knights had a chance to sit down with Kortenhorst to talk about the new RMI-CWR alliance, the rise of the “transactive” grid, the fall of the fossil fuel industry, and what we can expect to see along the path to December’s Paris climate summit. Below is an edited excerpt of our discussion.
CK: What attracted you to the job of leading the Rocky Mountain Institute?
Kortenhorst: About nine years ago I decided that climate change is the biggest issue that we face as humanity, and that I would dedicate my life to trying to make sure that the planet we have enjoyed will be enjoyed the same way by the generation of my children and grandchildren. I’ve done it in different settings. First, I tried to help influence policy as a member of the Dutch parliament. I found that most difficult and frustrating, so then I led the European Climate Foundation for a number of years, where a lot of the work was focused on the policy change that will help drive the transition to a low-carbon economy. That was very rewarding and an important opportunity, but it was also frustrating, in that particularly in a financial crisis, 2009, 2010, and a post Copenhagen [climate summit] reality, we all had to come to grips with the fact that the policy process to address climate change is unpredictable, moves more slowly than the challenge that we face, and therefore cannot be the only instrument that we use to address this issue. It isn’t the only instrument. In fact, what I think is so exciting about Rocky Mountain Institute and Carbon War Room is that both NGOs have historically looked at the issue of sustainable energy systems from the perspective of a market-based, business-driven transformation. Amory’s original thinking was well ahead of its time, and sometimes if the prophet has been declaring the future for a long time and it hasn’t arrived, it loses maybe a bit of its credibility, but the reality is, the energy revolution is here now.
CK: Rocky Mountain Institute has been around since 1982. It has predicted a lot of change and seen a lot of change. How has reality matched up with RMI’s vision?
Kortenhorst: We can now in many instances point to historical predictions from Amory’s time that actually are right on the money, and in some cases we can point to things we have been saying for a very long time and which are now finally coming true. There are some areas where technology continues to surprise us. We did not foresee the speed at which solar panels have come down in price over the last five years, faster than almost anybody predicted. The long-term trends we had right, but the short-term acceleration and the deceleration of price over the last five years I think almost nobody foresaw. So I would say that RMI has always been on the right path, but may not have always been able to reach as broad an audience with its messaging as it would have liked to.
CK: How complementary are RMI and Carbon War Room?
Kortenhorst: RMI always stood for fact-based, objective, independent analysis, and in that sense gained a lot of support and recognition from big institutions and large corporations. Carbon War Room, on the other hand, has always been entrepreneurial. It’s very much a reflection of the track record and brilliance of Sir Richard Branson, and the Carbon War Room is, therefore, an organization that has a reach into smaller companies, entrepreneurs, and capital markets. It has a buzz to it. It is sometimes a bit bolder, and more entrepreneurial in its pathway to impact. So how these two organizations complemented each other was striking to us, and when we started to collaborate – on the program to help Caribbean islands move to a low-carbon energy system – it focused how good the fit actually was. The merger resulted from the clear sense that wow, these two things fit very well together, and one plus one can really equal three or more.
CK: Low-carbon solutions are here already, and they’ve been here for a while. We could always use more, but the biggest barriers now seem more about access to capital and the lack of good business models. How do you see it?
Kortenhorst: You’re absolutely right. These solutions are here now. We do not need material breakthrough inventions any longer. We do still need and will continue to see tremendous benefits from scale and from improved efficiency of the solutions, and from learning curves, and price reductions.
CK: Tell us about the importance of that learning curve.
Kortenhorst: It is an incredibly important message – including for politicians who don’t always understand the rigor and inherent implications of learning curves – that in the case of solar, for example, shows a 24.3 per cent decline in cost consistently, year after year after year. And we’re seeing almost exactly the same thing with batteries. The price point at which Tesla announced its battery storage for the home and the grid was well below what we expected, and there’s indication that that learning curve is definitely there for the future as well. We see the same thing also in wind, though with a more gradual decline in cost. So we don’t need invention. We have the solutions; we just need to deploy them at scale. Costs can still come down, and accelerating the deployment will help. But we now need business models, and the capital flows, and the regulatory frameworks. If you think about the very important utilities sector, their business models and capital flows are inherently dependent on a regulatory framework. It’s the regulatory framework that enables business models, and therefore capital flow.
CK: Utilities are watching closely, I imagine, as what’s happening is already starting to impact their businesses.
Kortenhorst: The Rocky Mountain Institute is in the middle of advising the public service commission of New York on a big revision to the regulatory framework for New York utilities, which will, in turn, determine the long-term business model and therefore the profitability of companies like ConEdison. This is a keenly awaited proceeding under an administrative judge, and we’re inside the commission’s team. There’s a lot of advocacy going on around that proceeding, and preliminary results will be posted for comments on July 1. It will be looked at by many people as a breakthrough new perspective for the utilities sector.
CK: What high-level observations are emerging from this proceeding?
Kortenhorst: I think we will see an industry that is much more decentralized, and which has many more characteristics of consumers acting as suppliers, and suppliers and consumers being integrated and transacting together. Second, we refer to the role of utilities going forward as managing the transactive grid.
CK: So is the idea that they take a toll – micropayments – for the electrons moved through their lines?
Kortenhorst: Absolutely. It’s much more similar to the change that we saw with the Internet and the way companies, organizations like Airbnb or Uber, are facilitating individuals being part of the transactive community.
CK: Presumably under that scenario the grid would be a hybrid of centralized and decentralized?
Kortenhorst: That gets to the third point, which is very important. For it all to work effectively, we have to truly recognize the value of all the components of the grid. There is obviously a value for large-scale production of electricity, which is still a standby facility in the system, but we also have to appropriately value the solar on the roof. We have to value storage, either as part of the grid system or in your car. We have to value the responsiveness of the demand that can follow supply, as opposed to supply always following demand. So the rate structures that go with this transactive grid have to accurately reflect the value of all the compartments of a complex electricity system. Pricing signals have to be very carefully designed to make it all work.
CK: So the world of electricity is going to look dramatically different. What about the automotive industry?
Kortenhorst: The world of automotive transportation will look dramatically different. Tesla is coming out in 2017 with its smaller model, which will have a 300-mile range, will have the performance of the Porsche 911, will have no maintenance costs to speak of, very little fuel costs – and it will cost $35,000. At that point, why for Pete’s sake would you buy one of these old gas-powered clunkers? At that point, it’s essentially game over for the internal combustion engine. Although not as sharp as the PV curve, the curve for batteries is similar. Look at how many patents were filed for storage technology about 5 years ago. You can see those technologies coming into the marketplace now. There’s an enormous amount of exciting new stuff on the way. It’s not just Tesla’s Gigafactory.
CK: And it’s more than just the battery, right?
Kortenhorst: An additional transformation in the automotive sector is the move from what we call PIGS (personal internal gas systems) to SEALS (smart, electrified, autonomous, lightweight, and shared vehicles). Suddenly the amount of cars on the road, the type of cars on the road, what they do, can look dramatically different. And this is not something that is 30 years out; it’s something we will see on the road in the next decade.
CK: An example is BMW, which is now mass-producing electric vehicles – such as its i3 – with carbon-fiber bodies at a factory powered by renewables.
Kortenhorst: Absolutely! Amory is very pleased to see that, and BMW has acknowledged that what was a dream for him is now BMW’s strategy.
CK: Clearly there are big changes coming. What advice would you give a leader of a country in the face of these massive trends?
Kortenhorst: If I’m the prime minister of Canada and I have this incredible set of stakeholders, and this massive income and business in the tar sands – the dirtiest and ugliest of oil resources on the planet – but it employs a lot of people and it brings in some tax revenue; if I see this train of an energy revolution coming at me, and I don’t know exactly how fast it goes, but increasingly it seems like it’s going faster and faster and faster, then what are the implications for a national compatibility strategy? It may well be that Canada soon is the purveyor of horse buggies and horse whips at the beginning of the twentieth century.
CK: So is fresh thinking what’s required?
Kortenhorst: The ability and willingness to think completely out of the box, and to see the opportunity in this new energy reality as opposed to the threat, is really what is required. But for corporate executives who have spent their lives within the constraints of the old model, or for government officials who have seen tax revenue and job creation derived from the old energy reality, it is incredibly hard to make that mental shift. Yet don’t underestimate the number of young people in Silicon Valley, and in Helsinki, Finland, China, and in other innovative places, who are not bound by those constraints, and who don’t operate under the paradigm that an energy transformation, or an energy innovation, takes 40 years to gain 1 per cent of market share. The reality within which Silicon Valley looks at energy is, I don’t know anything about energy, but I know all about new business models, and IT-enabled change, and I’m just going to do what I’m going to do at the pace that I want to do it at. Elon Musk is a wonderful example of that, and so is Tony Fadell from Nest.
CK: So energy transitions that moved slowly in the past are not indicative of the transition we’re witnessing?
Kortenhorst: Let’s go ask the folks at AT&T or NCR how long it would take to deploy an Internet with apps that is mobile. They’d probably say 50, 60, 70 years, but we did it in 20 – and those companies are not around any more.
CK: There is a lot of built up optimism as we head toward the Paris climate summit in December. Do you think that we’re at a turning point? What if Paris doesn’t deliver?
Kortenhorst: I’m optimistic that Paris will yield results, but let’s be very clear about what that result will look like. Paris is not going to deliver a legally binding deal for emission reductions. What Paris will deliver is hopefully initial commitments from countries around the globe, and a ratcheting mechanism that can get us to 2 degrees. Paris will also not deliver a global price on carbon, as much as I would love to see that happen. What Paris will deliver, however, is a framework within which countries can together work towards a low-carbon transition. But maybe even more important, it will deliver a very clear marker, a sign that says where we’re heading – that is, it’s game over for tar sands, game over for coal, game over for the old way of thinking about the energy system and sustainability. That very clear indication will unleash much more confidence from markets and business leaders and entrepreneurs and capital investors as to where their bread will be buttered.