Saturday, November 1, 2008

Green Tech Must First Make Economic Sense Says Vinod Khosla

STANFORD GRADUATE SCHOOL OF BUSINESS —The world cannot simply conserve its way out of the current environmental and energy crises, warned venture capitalist Vinod Khosla.  Instead it must create technology alternatives that are both affordable and widely accepted by consumers across the globe.

Khosla, MBA ’80, hammered that message home to more than 275 students and alums who attended the 18th annual Conradin von Gugelberg Memorial Lecture on the Environment at the Stanford Graduate School of Business on Nov. 10.

The founding chief executive officer of tech giant Sun Microsystems who later moved into the venture capital industry, Khosla in 2004 launched Khosla Ventures, his own firm which supports investments in both conventional companies and social impact initiatives.

During his Business School appearance, Khosla took issue with the wisdom of zero emission buildings and hybrid vehicles, saying any climate change solution must first make economic sense in order to truly be effective. “Free market capitalism is in fact the only thing that will solve the problem,” he said. “There is such a thing as too much green, falling so in love with green that we waste our resources trying to do un-economic things.

He presented data showing that while the all-electric powered GM Volt, expected to be sold starting in 2010, would emit 144 grams of carbon dioxide per mile, the vehicle would also cost a hefty $623 a month to drive and much of the electricity required to power the car would be created by burning coal.

On the other hand, Khosla said, “A Prius might save you, depending on your calculations, a half a ton to two tons of carbon a year,” speaking of the battery and gasoline powered Toyota vehicle. But, he added, “Just painting your (home’s) roof white saves you 10 tons of CO2. That’s good economics. Instead of spending $5,000 extra for that Prius, you could spend a few hundred dollars to replace the light bulbs in your house with more efficient ones and save a lot more carbon.”

He also described a 3-year pilot project in Oakland, CA,  involving zero-emission hydrogen fuel cell busses saying it cost $1.61 per mile to operate a diesel vehicle, but more than 30 times that amount—$51.66 per mile—to run a zero-emission hydrogen fuel cell bus. “If, as environmentalists, we keep pushing these ideas, we’ll end up on the fringe,” Khosla warned.

Another of his examples of questionable climate change solutions were zero-emission or green buildings, which Khosla called “the latest fashion.” He explained: “It is so much more efficient to generate power centrally. To try and make each building self-sufficient is just fundamentally a bad idea. If it happens that a building is zero emission because it is best economics, great, go for it. But let’s not make zero emission the goal. Let’s make low-cost green the goal.” His Menlo Park-based venture firm has invested in about 45 early-stage, environmentally-friendly ideas, including a ceramic battery that can produce 10 times the energy density of its lead-based counterpart at one-tenth the cost and a technology that seeks to convert algae to ethanol.

He calls them potential “Black Swans,” beneficial outliers that are beyond the realm of normal expectations.

In response to a question from the audience about where incoming president Barack Obama would channel a proposed $150 million earmarked for development of green technology, Khosla said the incoming administration should direct those funds to universities, where more students than ever are researching energy solutions and new technologies.

Energy, Khosla said, “is the hottest field now for new graduate students picking their majors. Because the best talent, the best brains, will be in energy 5 or 10 year from now, that’s very encouraging to me.”

Besides his Stanford MBA, Khosla holds a Bachelor of Technology in Electrical Engineering from the Indian Institute of Technology in New Delhi and a Master's in Biomedical Engineering from Carnegie Mellon University.

The annual Conradin von Gugelberg Memorial Lecture, memorializing a member of the MBA Class of  ’87, was founded by classmates to motivate and support students interested in environmental issues. The 2008 lecture was presented by the Business School’s Public Management Program and the Woods Institute for the Environment at Stanford University.