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Solving the Energy Crisis One Small Step at a Time

By Doug McInnis

Since the Arab oil embargo swept away the era of cheap energy more than three decades ago, America has groped for new, inexpensive ways to heat homes, fuel cars, and power the economy. Nothing has quite worked. Now, as the economy stutters over high-priced oil, a new vision of the future has begun to emerge – an energy solution based not on government programs or one magical new technology, but on thousands of small initiatives underway in the United States and throughout the world at large.

Someday, the energy crisis may be solved by orbiting solar arrays which beam power back to Earth. In the meantime, venture capitalist J. Alexander Sloan, MBA '98, is betting on companies like Orion Energy Systems, which makes energy-saving lighting systems for warehouses, manufacturers, and big-box retailers.

"We're not swinging from the fences looking for technologies that may take 15 or 20 years to develop," says Sloan, a principal with Expansion Capita Partners, a venture capital firm in San Francisco and New York that invests in expansion stage clean technology companies. "We fund companies that provide innovative but incremental improvements in energy and resource efficiency along the path to more futuristic solutions."

Orion, for instance, uses reflectors and other technologies that allow its customers to get more light from 220 watt fixtures than from the 465 watt fixtures they replace. It's a small change, but it's an example of how the United States may work its way out of the energy muddle – with small energy-saving measures that add up.

One of Orion's customers, a large Midwestern printing company, offers a case in point. The printing concern installed Orion's systems at its plants and began saving 35 million kilowatt hours annually, or about $2 million a year.

By contrast, energy policy reform in Washington often promises great things, but comes to nothing.

"Everybody is looking for a silver bullet," says Ken Derr '59, MBA '60, who served as chairman and CEO of Chevron from 1989 to 1999.

Ken Derr '59, MBA '60"Everybody is looking for a silver bullet. There aren't any. You have to increase supply and reduce demand."
Ken Derr '59, MBA '60
"They want a one-page answer to the problem and there aren't any. You have to increase supply and reduce demand. Conservatives argue that we should increase supply. Liberals want to conserve. The result is that they fight all of the time and almost nothing gets done. The fact of the matter is that if we're really serious about an energy strategy, we've got to do both."

In the private sector, however, corporations can't wait for an energy policy; they're looking for ways to save money now. Wal-Mart, for instance, has discovered real, bottom-line value to the mantra, "buy locally": they're spending a lot less on transportation by buying lettuce from local producers, instead of buying all their lettuce from California and shipping it to stores across the country, says Sloan. "This means the produce is fresher, and since their trucks are driving fewer miles to deliver local or regionally grown produce, they are producing less greenhouse gas emissions."

Other companies have turned the energy crisis into a selling point. One is AMD, the big computer chip maker. AMD's new chips use less electricity and generate less heat than competitors' chips, so customers benefit in two ways: They use less power to run their servers and workstations, and less air-conditioning to keep the computers and data centers cool.

"The race used to be about the amount of computing power on a chip," says Sloan. "Now a product feature we didn't care much about before, energy usage, is front and center."

J. Alexander Sloan, MBA '98
"The race used to be about the amount of computing power on a chip. Now energy usage is front and center."
J. Alexander Sloan
MBA '98

A Capitalist Solution
To Stuart Hart, who holds the S.C. Johnson Chair in Cornell's Center for Sustainable Global Enterprise, capitalism is the driving force behind such changes, because it rewards creativity and problem solving with profits. "In the past, we've relied on government to get things done," he says. "But I think for-profit business will lead us to our goal.

"What makes free-market capitalism great is its ability to create new ways of doing things," says Hart. "It's what capitalism is really good at – the creative destruction and innovation that makes old businesses obsolete. Once you get some momentum toward the creation of new industries, there is a strong motivation as part of the capitalist system to grow them as quickly as you can."

Professor Stuart Hart '98
"In the past, we've relied on government to get things done. "But I think for-profit business will lead us to our goal."
Professor Stuart Hart '98
Many of these innovations are occurring in developing countries that aren't strapped by huge investments in the energy technologies of the past. A case in point Hart cites is India's Solar Electric Light Company, which sells solar power to the poor, who buy a few solar panels to start with and combine them with energy-miser LED lighting. Two billion people worldwide live off the electric grid, and Solar Electric has seized on them as a market. The company is growing at 50 to 60 percent a year.

Such solutions may gradually bail the world out of the myriad problems related to dependence on fossil fuels – problems such as price, supply, and global warming, which a majority of scientists blame at least in part on fossil fuel emissions. In the United States, less obvious fossil fuel costs include the country's mounting trade deficit, and risks incurred by contributing to the wealth of hostile, oil-rich nations.

A Worsening Energy Crisis
Over the decades, energy usage has been a major concern for business only when the price jumped. When prices leveled off or fell, energy efficiency slipped into the background. This time, however, the United States and the rest of the world may be in a crunch that will only get worse with time.

Energy costs have been growing steadily in spite of conservation efforts. The problem is that worldwide consumption is rising quickly, spurred by surging demand from China and India, which have plunged headlong into the industrial and automotive age. America adds to the demand pressures by guzzling energy of every type: The United States consumes about 23 percent of the world's oil and accounts for about 25 percent of total world energy usage, according to federal estimates. That's more than China, India, and Russia combined.

The squeeze could get much worse if the "peak oil" theory proves true. According to this theory, advanced decades ago by M. King Hubbert, a respected Shell Oil geologist, worldwide oil production would peak around the year 2000 and then begin to fall. No one might have paid much attention to Hubbert were it not for the accuracy of his first big prediction – that U.S. oil production would peak around 1970. Critics scoffed at the notion until 1970 rolled around and American production began its long slide.

In the meantime, the U.S. energy industry has increasingly focused on less accessible sources of petroleum – oil from shale, from tar sands, from the sea, and from places that conservationists want to see off-limits, such as the Arctic National Wildlife Refuge. "There's been a tremendous fight over ANWR," says former Chevron CEO Derr. "To my way of thinking, it's insanity not to go up there and see if there's oil."

Power From Atoms, Power From Cows
As the energy crisis has worsened, all options are worth exploring. One suggestion for handling the problem is to reinvigorate the nuclear power industry. "People are worried about nuclear waste storage," says David BenDaniel, the Don and Margi Berens Professor of Entrepreneurship and a former Exxon vice president for alternate energy development. "But the storage issue is small compared to the carbon dioxide, sulphur dioxide, and particulates coming out of coal-fired plants."