by Bill Gates
I admit that “policy” is a vague, dull-sounding word. A big breakthrough like a new type of battery would be sexier than the policies that led some chemist to invent it. But the breakthrough wouldn’t even exist without a government spending tax dollars on research, policies designed to drive that research out of the lab and into the market, and regulations that created markets and made it easy to deploy at scale.
In this book, I’ve been emphasizing the inventions we need to get to zero—new ways of storing electricity, making steel, and so on—but innovation is not just a matter of developing new devices. It’s also a matter of developing new policies so we can demonstrate and deploy those inventions in the market as fast as possible.
Luckily, in developing these policies, we’re not starting with a blank slate. We’ve got a lot of experience regulating energy. In fact, it’s one of the most heavily regulated sectors of the economy, in the United States and around the world. In addition to cleaner air, smart energy policies have given us the following:
Electrification. In 1910, only 12 percent of Americans had electric power in their homes. By 1950, more than 90 percent did, thanks to efforts like federal funding for dams, the creation of federal agencies to regulate energy, and a massive government project to bring electricity to rural areas.
Energy security. In response to the oil shocks of the 1970s, the United States set out to increase domestic production from various energy sources. The federal government began its first major research and development projects in 1974. The next year saw major legislation related to energy conservation, including fuel efficiency standards for cars. Two years later came the creation of the Department of Energy. Then, in the 1980s, oil prices collapsed, and we abandoned many of these efforts—until prices started rising again in the 2000s, sparking a new wave of investment and regulation. As a result of these and other efforts, in 2019 America exported more energy than it imported for the first time in nearly 70 years.
Economic recovery. After the Great Recession of 2008, governments created jobs and spurred investment by putting money into renewable energy, energy efficiency, electricity infrastructure, and railroads. In 2008, China launched a $584 billion economic stimulus package, a large part of which went to green projects. In 2009, the American Recovery and Reinvestment Act used tax credits, federal grants, loan guarantees, and R&D funding to shore up the economy and reduce emissions. This was the single largest investment in clean energy and energy efficiency in American history, but it was a onetime injection, not a lasting change in policy.
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Now it’s time to turn our policy-making experience to the challenge at hand: zeroing out our greenhouse gas emissions.
National leaders around the world will need to articulate a vision for how the global economy will make the transition to zero carbon. That vision can, in turn, guide the actions of people and businesses around the world. Government officials can write rules regarding how much carbon power plants, cars, and factories are allowed to emit. They can adopt regulations that shape financial markets and clarify the risks of climate change to the private and public sectors. They can be the main investors in scientific research, as they are now, and write the rules that determine how quickly new products can get to market. And they can help fix some problems that the market isn’t set up to deal with—including the hidden costs that carbon-emitting products impose on the environment and on humans.
Many of these decisions are made at the national level, but state and local governments have a big role too. In many countries, subnational governments regulate electricity markets and set standards for energy use in buildings. They plan massive construction projects—dams, transit systems, bridges, and roads—and choose where these projects will be built and with what materials. They buy police cars and fire engines, school lunches, and lightbulbs. At each step, someone will have to decide whether to go with the green alternatives.
It might seem ironic that I’m calling for more government intervention. When I was building Microsoft, I kept my distance from policy makers in Washington, D.C., and around the world, thinking they would only keep us from doing our best work.
In part, the U.S. government’s antitrust suit against Microsoft in the late 1990s made me realize that we should’ve been engaging with policy makers all along. I also know that when it comes to massive undertakings—whether it’s building a national highway system, vaccinating the world’s children, or decarbonizing the global economy—we need the government to play a huge role in creating the right incentives and making sure the overall system will work for everyone.
Of course, businesses and individuals will need to do their part too. In chapters 11 and 12, I’ll propose a plan for getting to zero, with specific steps that governments, businesses, and individuals can take. But because governments will play such a major role, first I want to suggest seven high-level goals they should be aiming for.
1. Mind the Investment Gap
The first microwave oven hit the market in 1955. It cost, in today’s dollars, nearly $12,000. Today, you can get a perfectly good one for $50.
Why did microwaves get so cheap? Because it was immediately obvious to consumers why you’d want something that could heat up food in a fraction of the time it took your conventional oven. Microwave sales rose quickly, which drove competition in the marketplace, which led to the production of cheaper and cheaper appliances.
If only the energy market worked the same way. Electricity isn’t like a microwave oven, where the product with the best features wins out. A dirty electron will run your lights just as well as a clean one. As a result, without some policy intervention—such as a price on carbon, or standards that require a certain volume of zero-carbon electrons in the marketplace—there’s no guarantee that the company that invests in sending you clean electrons will actually make money. And there’s considerable risk, because energy is such a highly regulated and capital-intensive industry.
So you can see why the private sector systematically underinvests in R&D on energy. Companies in the energy business spend an average of just 0.3 percent of their revenue on energy R&D. The electronics and pharmaceutical industries, by contrast, spend nearly 10 percent and 13 percent, respectively.
We’ll need government policies and financing to close the gap, focusing especially in areas where we need to invent new zero-carbon technologies. When an idea is in its earliest stages—when we’re not sure whether it’ll work, and success may take longer than banks or venture capitalists are willing to wait—the right policies and financing can make sure it gets fully explored. It might be a big breakthrough, but it might be a bust, so we’ll need to tolerate some outright failures.
In general, the government’s role is to invest in R&D when the private sector won’t because it can’t see how it will make a profit. Once it becomes clear how a company can make money, the private sector takes over. This is in fact exactly how we got products you probably use every day, including the internet, lifesaving medicines, and the Global Positioning System that your smartphone uses to help you navigate around town. The personal computer business—including Microsoft—would never have been the success that it was if the U.S. government hadn’t put money into research on smaller, faster microprocessors.
In some sectors, like digital technology, the government-to-company handoff happens relatively quickly. With clean energy, it takes much longer and requires even more financial commitment from the government, because the scientific and engineering work is so time-consuming and expensive.
Investing in research has another benefit: It can help create businesses in one country that export their products to others. Country 1, for example, could create a cheap electrofuel, selling it to its own people but also exporting it to country 2. Even if country 2 otherwise lacks the ambition to reduce its emissions, it will end up doing so, simply because someone else invented a better, cheaper fuel.
Finally, although R&D yields benefits on its own
, it is most effective when you pair it with demand-side incentives. No business is going to turn that new idea published in a scientific journal into a product unless it’s confident that it’ll find willing buyers, particularly in the early stages, when the product will be expensive.
2. Level the Playing Field
As I’ve argued ad infinitum (and possibly ad nauseam), we need to reduce the Green Premiums to zero. Some of that we can accomplish with the innovations I described in chapters 4 through 8—by making it cheaper to produce zero-carbon steel, for instance. But we can also raise the cost of fossil fuels by incorporating the damage they cause into the prices we pay for them.
Today, when businesses make products or consumers buy things, they don’t bear any extra cost for the carbon involved, even though that carbon imposes a very real cost on society. This is what economists call an externality: an expense that’s borne by society rather than the person or business who’s responsible for it. There are various ways, including a carbon tax or cap-and-trade program, to ensure that at least some of these external costs are paid by whoever is responsible for them.
In short, we can reduce Green Premiums by making carbon-free things cheaper (which involves technical innovation), by making carbon-emitting things more expensive (which involves policy innovation), or by doing some of both. The idea isn’t to punish people for their greenhouse gases; it’s to create an incentive for inventors to create competitive carbon-free alternatives. By progressively increasing the price of carbon to reflect its true cost, governments can nudge producers and consumers toward more efficient decisions and encourage innovation that reduces Green Premiums. You’re a lot more likely to try to invent a new kind of electrofuel if you know it won’t be undercut by artificially cheap gasoline.
3. Overcome Nonmarket Barriers
Why are homeowners reluctant to abandon fossil-fuel-powered furnaces in favor of lower-emissions electric options? Because they don’t know about the alternatives, there aren’t enough qualified dealers and installers to provide them, and in some places it’s actually illegal.
Why don’t landlords upgrade their buildings with more efficient appliances? Because they pass the energy bills on to their tenants, who often aren’t allowed to make the upgrades and who probably won’t live there long enough to reap the long-term benefits anyway.
Neither of these barriers, you’ll notice, has much to do with cost. They exist mainly because of a lack of information, or trained personnel, or incentives—all areas in which the right government policies can make a big difference.
4. Stay Up to Date
Sometimes the big barrier isn’t consumer awareness or markets that are out of whack. Sometimes it’s government policies themselves that make it hard to decarbonize.
For example, if you want to use concrete in a building, the building code will spell out in excruciating detail how well that concrete has to perform—how strong it has to be, how much weight it can bear, and so on. It may also define the precise chemical composition of the concrete you can use. These composition standards often rule out a low-emissions cement that you want to use, even if it meets all the performance standards.
No one wants to see buildings and bridges collapsing because of faulty concrete. But we can make sure the standards reflect the latest advances in technology and the urgency of getting to zero.
5. Plan for a Just Transition
Such a massive shift to a carbon-neutral economy is bound to produce winners and losers. In the United States, states whose economies rely heavily on drilling for fossil fuels—Texas and North Dakota, for example—will need to add jobs that pay as well as the ones they lose, and they’ll need to replace tax revenue that currently pays for schools, roads, and other essentials. So will beef-growing states like Nebraska, if artificial meats take the place of conventional ones. And low-income people, who already spend a significant portion of their income on energy, will feel the burden of Green Premiums more than most.
I wish there were easy answers to these problems. Certainly there are some communities where high-paying oil and gas jobs will naturally be replaced with jobs in, say, the solar industry. But many others will need to go through a difficult transition to relying on something other than extracting fossil fuels for their livelihood. Because the solutions will vary from place to place, they’ll need to be shaped by local leaders. But the federal government can help—as part of an overall plan for getting to zero—by providing funding and technical advice and by connecting communities around the country that are experiencing similar problems so they can share what’s working.
Finally, in communities where extracting coal or natural gas is a big part of the local economy, it’s understandable that people worry about how the transition might make it harder for them to make ends meet. The fact that they voice those worries doesn’t make them climate change deniers. You don’t have to be a political scientist to think that national leaders who champion getting to zero will find more support for their ideas if they understand the concerns of families and communities whose livelihoods will be hit hard and if they take those concerns seriously.
6. Do the Hard Stuff Too
A lot of climate change work focuses on the relatively easy ways to reduce emissions—things like driving electric cars and getting more power from solar and wind. That makes sense, because showing progress and demonstrating early success helps get more people on board. And it’s important: We’re not doing the relatively easy stuff at nearly the scale we need, so there are huge opportunities to make major progress right now.
But we can’t just go after this low-hanging fruit. Now that the movement to address climate change is getting serious, we’ll need to focus on the hard parts too: electricity storage, clean fuels, cement, steel, fertilizer, and so on. And that will require a different approach to policy making. In addition to deploying the tools we already have, we’ll need to invest more in R&D on the hard stuff and—because much of it is core to our physical infrastructure, like roads and buildings—use policies specifically designed to get these breakthroughs created and into the marketplace.
7. Work on Technology, Policy, and Markets at the Same Time
In addition to technology and policy, there’s a third aspect that we’ll need to factor in: the companies that will develop new inventions and make sure they reach a global scale, as well as the investors and financial markets that will back these companies. For lack of a better term, I’ll broadly call this group “markets.”
Markets, technology, and policy are like three levers that we need to pull in order to wean ourselves from fossil fuels. We need to pull all three of them at the same time and in the same direction.
Simply adopting a policy—say, a zero-emissions standard for cars—won’t do much good if you don’t have the technology to eliminate emissions or if there aren’t any companies willing to manufacture and sell cars that meet the standard. On the other hand, having a low-emissions technology—say, a device that captures carbon from a coal plant’s exhaust—won’t do much good if you don’t create the financial incentive for power companies to install it. And few companies will make a bet on inventing zero-emissions technology if their competitors can undersell them with fossil-fuel products.
That’s why markets, policy, and technology have to work in complementary ways. Policies, such as higher spending on R&D, can help spark new technologies and shape the market systems that will make sure they reach millions of people. But it works the other way too: Policies should also be shaped by the technologies we develop. If, for example, we came up with a breakthrough liquid fuel, then our policies would focus on creating the investment and financing strategies to get it to global scale, and we wouldn’t need to worry as much about, say, finding new ways to store energy.
I’ll give you a few examples of what happens when all three things work together and when they don’t.
To see the effect of policies that don’t keep up with technology, look at the nuclear power indust
ry. Nuclear is the only carbon-free energy source we can use almost anywhere, 24 hours a day, 7 days a week. A handful of companies, including TerraPower, are working on advanced reactors that solve the problems of the 50-year-old design used by reactors you see today: Their designs are safer and cheaper and produce much less waste. But without the right policies and the right approach to markets, the scientific and engineering work on these advanced reactors will go nowhere.
No advanced nuclear plant will ever be built unless the design can be validated, the supply chains can be established, and a pilot project can be built to demonstrate the new approach. Unfortunately, with a few exceptions like China and Russia—which are directly investing in state-supported advanced nuclear companies—most countries don’t have workable ways to do these things. It would help if some governments were willing to co-invest in them to help get demonstration projects up and running—as the U.S. government has done recently. I realize this might sound self-serving, given that I own an advanced-nuclear company, but it’s the only way nuclear power will have a chance of helping with climate change.
The example of biofuels shows a different challenge: making sure we know what problem we’re trying to solve, and tuning our policies accordingly.
In 2005, with an eye on rising oil prices and a desire to import less oil, Congress passed the Renewable Fuel Standard, which set targets for how much biofuel the country would use in the coming years. Simply passing this legislation sent a strong signal to the transportation industry, which invested a lot in the biofuel technology that existed at the time—corn-based ethanol. Corn ethanol was already fairly competitive with gasoline, because gas prices were going up and ethanol producers benefited from a decades-old tax credit.
