Tom Steyer on the Future of California’s Clean Energy Economy & US Climate Policy

As a former investor in clean tech, a strong advocate for utility regulatory reform, and a driver in advanced climate policy research, opine: How might the upcoming fall federal and state elections impact the capital markets for alternative and renewable energy investment?

Tom Steyer: To understand what’s at stake in November 2016 with regard to clean tech investment and the capital markets, you have to understand that basically the government sets the rules. In very simple terms, investors are looking for candidates who understand that government's role is to set a framework within which private enterprise can compete, innovate, and answer society's needs.

It's important, as we move to a sustainable clean energy economy, to know that the government understands why that's important, that it sets a level playing field, and that it makes it possible for that to happen.

When it comes to who's running for office, you could not imagine a greater difference in terms of professed interests in energy policy than the one between Hillary Clinton and Donald Trump.

Donald Trump is literally talking about trying to return to the 1950s economy. He's said he's going to repudiate the Clean Power Plan and repudiate the Paris Agreement. He's going to do as much as he can to restore the coal industry to having a higher percentage of electricity generation. All of those are things that would unnerve the capital markets, reduce the amount of investment, and increase the amount of uncertainty.

Kat and I are passionate about the need for people in the public sector who understand how our economy actually works and how the economy of the future needs to work.* Rather than going with very simplistic, jingoistic promises to return to something that became outdated 60 years ago, they need to understand that we're going to make a better, cleaner world for our families and our kids, and we're going to do it at the same time that we create good-paying jobs and cleaner air.

This past month, the New York Times profiled NRG, suggesting that the company has become a cautionary tale. Are the power producers and utilities turning to alternative energy today simply canaries in the coal mine?

 I should start with the disclaimer that our son works for NRG, at Station A, the renewable unit. He's working to write software to enable renewables to be more easily put onto the grid.

The move to clean and advanced energy is inevitable. The speed and consistency with which we make that move is totally dependent on policies and rules—including, very, importantly, getting the utilities system to incent the right behavior.

As an independent power producer, NRG was and is part of a much bigger system with very complicated incentives built around an electricity system from the 1920s. They didn't back off renewables. What's going on is that the pace with which the system moves is dependent on political change that enables power producers, utilities, and customers to benefit from the kinds of changes that society itself needs. That is a complicated thing to accomplish, involving how the customers pay and how the utilities get paid.

To me, this is a perfect example of the need for strong policy advocates who understand what needs to be done to enable businesses to make money doing the right thing. To the extent that we come in and make bad decisions, and basically give big advantages to fossil fuel producers and companies that don’t do the right thing, then we’re going to come out with answers that aren’t good for society.

This goes back to your first question: Why is 2016 so important? It’s important because we need to have people making decisions on policy who will set up a framework wherein the people who desperately want to do the right thing can make money doing it, and can use the American free enterprise system to get people working at good jobs and creating the clean energy that we absolutely all know we need.

 If you were advising California’s governor, Cal-ISO, CPUC, the Energy Commission, and CARB, what energy policy changes would you recommend—both institutional and regulatory—to advance the California’s energy and climate change agenda?

I'll give you a very simple example regarding Senate Bill 32, which follows up on Assembly Bill 32. The passage of SB 32 provides a framework that has a long enough timeframe so that there’s no uncertainty to it, and investors know the government is serious. We needed to extend that legislation so that, going forward, people will understand the framework we’re working with.

This goes back to a very simple idea that George Shultz told me years ago: People need to think that the rules are set. You should never put in short-term rules, because people don’t change their whole lives for short-term rules. People need to have rules that they can look forward to for the foreseeable future and say, “This is the framework within which I’m going to compete.”

Electricity is very complicated. In order to do it right, there are a number of decisions that need to be made. I chose extending AB 32 as a simple way of talking about a very straightforward, well-known piece of legislation, which everyone knows needs an extension—but to the extent that the political system doesn’t make it easy, it unnerves investors.

Would you advocate for reform of the California Public Utilities Commission, and if so, what would your proposed reforms include?

The most important thing about the Public Utilities Commission is who’s on it.

The reason we have a Public Utilities Commission is that the people—not the companies—have a monopoly. We gave them the right to work within our monopoly, with our commissioners representing our interests and regulating under what circumstances and what rules they can operate. That’s fine with me.

The issue is: Is California now the right jurisdiction? There are 38 power jurisdictions in the West. When we think about a power system, how big is the system that we’re talking about? How does California relate to the other 37 jurisdictions? 

For the last three years at the VerdeXchange Conference in California, expert panelists have focused upon the western power grid. Do you have a policy position on California joining a Western Power Agreement?

That’s a complicated question. One of the things I’ve learned from Gil Duran is that I try not to speculate on things that are conditional.

I understand the issues about a larger power grid—the opportunities that it presents and the risks that it presents—and I think it’s the kind of thing where God is in the details. It’s very hard to generalize ahead of time about the circumstances that would make it good or bad.

You and Kat co-founded the TomKat Center for Energy Policy and Finance at Stanford University, and sometimes lecture at the law school on Business Opportunities in Sustainable Energy. Please give our readers some insights you have shared regarding the complexity involved in revamping our energy markets?   

I've taught in that course, but I have not seen exactly what they’re doing this year. In the past, they have pushed to get people to understand the different policy and legal questions that come up in terms of energy policy.

They're complicated; there are so many different overlapping regulators and interests that it’s important to know that as you move forward, how those interact and what it really takes to get something done.

Dan Reicher's point has been to introduce that to the students, and bring in both the values and the complexities involved in running an energy system. 

Kat Taylor: Let me add that there is a competitive research funding program we fund at Stanford and Harvard that is yielding some very promising results.

One at Harvard is the First 100 Watt project, which builds for the energy needs of the bottom of the pyramid up. It is the owner of the artificial leaf—a true catalyst fuel cell that splits hydrogen from oxygen in any liquid and creates very low-cost energy, coupled with a flow battery. It was pioneered by a scientist named Dan Nocera. That is very promising, and going into applied settings in India.

Also, one of the competitive funding grants at Harvard went to a group working on cellular agriculture, because we’ve got to get our hands on the role that agriculture plays in our energy footprint.

Tom, you are reportedly a member of the Breakthrough Energy Coalition, which aims to scale up the public research pipeline. Could you share the coalition’s goals and partnerships with governments?

It’s really about research and development, with a line drawn between the R and the D.

Traditionally in our society, pure research has been done by the federal government. When you think about who really invented the Internet, it was the Defense Department. When you think about all of the pure research that has been done by the federal government and then commercialized and developed by private enterprise, it’s staggering. The issue is that we spend way too little money on energy research.

A big part of the Breakthrough Energy Coalition, which is driven by Bill Gates, was to say to government: "If you do the research, we’ll do the development." If we get the pure science that only governments can do—because only governments have the timeframe and the scale to do it—then realistic investors and venture capitalists will take the ones that look promising and see if we can commercialize it. The government doesn’t have to worry about that; they just have to make sure that the amount of money we put into research—and the returns on pure government research—are phenomenal in terms of new industries, job creation, advanced for society.

The whole point of the Breakthrough Energy Coalition is to basically partner with government: If you do your job, which is the Research, we're telling you we'll do our job, which is the Development. And between those two, we’ll take the rate of change in the energy system and ramp it up a couple of terms—because we can’t afford to be in a static environment. We need to make this happen much faster than it otherwise would. 

Lastly, if the inauguration speech of the next president were to address climate change, what would you hope to see discussed?

If I could write her inauguration speech, I would have her say: "We understand we have an urgent issue with regard to energy and climate. We need to deal with it expeditiously, but it’s also important that we deal with it in a way that creates good-paying, well distributed jobs, and cleans our air."

I’d like to hear: "You have to know that it is an absolute priority of this administration to hand on an economy and a world to our children that is sustainable, cleaner, and safer than the one we live in right now. I guarantee to you that I will use every effort to make sure that my administration hands on that kind of world."

Hopefully we will hear that this January.

*For the record: Kat and I have segregated our clean tech investments to make sure that we cannot personally profit from any of them—basically by putting them into a foundation. The reason we did that is that we wanted to make sure that no one thought that we were advocating for clean energy or advanced energy policies so as to line our own pockets. We decided to completely take that off the table, even though I’m very interested in all of the technological aspects of change that are driving clean energy.