L.E.D.

by Bob Johnstone

  Consensus was not limited to the political parties. Following the precedent set in 1987, manufacturers and advocacy groups had also been involved in the negotiations over the provisions of the acts, and indeed in the case of the 2007 act, in writing the actual legislation. (“Round here you let industry do your work,” one of Bingaman’s senate staffers joked.) Among companies, by far the most actively engaged was Philips, the world’s largest lighting manufacturer.

  During the 1990s, following a series of strategic blunders, Philips had lurched perilously close to bankruptcy. In 2001, the year that Gerard Kleisterlee took over as its CEO, the company recorded the largest loss in its history. An engineer by background and, like his father before him, a lifelong Philips employee, Kleisterlee quickly took steps to regroup the company around its core strengths. One of these was lighting. By 2003 it was already clear that LEDs would sooner or later be bright enough to challenge the incumbents in general lighting applications. That year Kleisterlee tasked the head of the lighting subsidiary to draw up a strategy that, by embracing the new technology of LEDs, would enable Philips to retain its ranking as the world’s preeminent lighting company. The executive chosen to develop and implement this strategy was Peter van Strijp. He came from a business background, having previously headed Philips’ lighting electronics division (which included ballasts). “Top management were very, very eager to keep lighting in the leading position,” van Strijp told me. Unlike its two rivals, GE and OsramSylvania, which were mostly makers of bulbs and tubes, the Dutch firm was also active in lighting fixtures. For GE, lighting was a relatively small business; for Philips, the stakes were far higher.

  At Philips Lighting’s annual conference that year van Strijp had the chance to address its top one hundred executives. On a table in front of them he laid out some gadgets, like pens with built-in LEDs and plastic ice-cubes that cycled from color to color. The master of ceremonies glibly introduced his presentation as “Peter van Strijp’s Extravaganza,” as though he were putting on some sort of entertainment. His colleagues chuckled indulgently. But van Strijp soon wiped the smiles off their faces: solid-state lighting was something that needed to be taken very seriously, he warned them. They should understand that this was not just a new technology, it was a full-blown industrial transformation. He made three main points. First, solid-state lighting required new competences which Philips did not have, and within a few years would render obsolete most of the traditional competences which Philips did have. The company would be obliged to start again, from scratch. Second, in this reconfiguration, there were as yet no product standards, but there soon would be. If Philips wanted a say in shaping the new industry, the company had better get on board right away. Third, an entirely new light source was bound to create its own applications. “And I dwelt long on those possibilities,” van Strijp said.

  As light sources became cheaper, the world would use more of them. Plenty of examples showed how the introduction of new technology increased usage. For example, the coming of computers had greatly expanded the use of printing and paper. Key to the new applications was controllability. LEDs would make it possible to vault from simple on-off switching and dimming to new, much more sophisticated, digital scenarios. As a result, the global lighting industry, in which sales had long since been more or less stagnant, would enter a new age of rapid expansion. The industry would double in size, van Strijp predicted, from $50 billion to $100 billion. After his presentation ended, there was dead silence in the room as the stunned executives struggled to come to terms with the implications of the paradigm shift he had laid out.

  And then, as van Strijp put it, “the game started.” An industry road map was drawn up, applications to which LED brought a strong benefit were targeted. They included, as we have seen, brake lights, traffic signals, and signage. In addition, new niches such as commercial freezer cabinets like those used in supermarkets (fluorescents do not perform well in cold environments unlike LEDs, which thrive at low temperatures). Philips’ top management in Amsterdam endorsed the strategy. “They were always asking, What are you doing with LEDs? How far have you got with LEDs? Please make sure that you are in time,” van Strijp recalled. At board meetings, when the subject of LED technology came up, “it was not a question of whether we should do it, but of when and how much.”

  Inevitably, some opposition came from managers of existing business divisions. In large companies performance tends to be measured in terms of sales. Managers grumbled when their budgets were cut in favor of a business that had yet to generate significant returns. Overall, however, there was remarkably little conflict. “In 2004, if you had gone into the entrance hall of Philips Lighting headquarters in Eindhoven and asked some random employees what was strategic item number one,” van Strijp insisted, “I can tell you the majority of them would have said: LEDs.” The idea of reinventing the lighting industry was exciting, particularly for younger staff, who were attracted by the intellectual challenge and new opportunities. By contrast, conventional business groups had difficulty keeping their workers motivated. “People want to go where the action is,” van Strijp shrugged.

  In addition to activity within the corporation, the strategy also manifested itself externally, in terms of acquisitions. In 2005, as we have seen, Philips bought a controlling interest in Lumileds for $948 million. That took care of the component side of the business. On the applications side, a roadblock had arisen in the shape of a Boston-based startup called Color Kinetics. This company had erected a robust patent wall around color-changing technology, with an emphasis on the digital electronics used to control LEDs. It had also filed applications on the control of white light sources. Color Kinetics was vigorously defending its intellectual property. Each patent included hundreds of claims, which for any new product meant expending a huge amount of effort merely to check for possible infringements. This situation could not be allowed to continue. Eventually, in 2007, Philips decided to bite the bullet, splashing out a whopping $791 million to buy Color Kinetics. “It became an expensive acquisition for us,” van Strijp said, “and that again showed very clearly how convinced the board in Amsterdam was. They didn’t mind that we had to pay a high price, they simply did not want to miss out.”

  By then, Philips top management had already upped the ante. In a speech he gave to an energy efficiency forum in Brussels in December 2006 the CEO of Philips Lighting, Theo van Deursen, made a remarkable announcement. He told attendees that two thirds of lighting installed in Europe was based on old, energy-inefficient technology. Replacing it with new, efficient technology would save, at a conservative estimate, twenty percent of electricity consumption, worth 14 billion euros a year. This was the equivalent of 59 million tons of carbon dioxide, or the output of 67 power stations. A major contribution could be made in the home sector. To this end, van Deursen said, “we are calling for a joint action to replace incandescent light bulbs in Europe with energy-efficient alternatives within ten years. The action is to tackle this issue collectively, with the lighting industry, NGOs, energy suppliers, and governments.”

  The gauntlet had been thrown down. And not just in Europe, either. Three months later, at the National Press Club in Washington, DC, a coalition of companies, environmental groups, and energy generators made a very public commitment. They would seek legislation to achieve a market phase-out of the traditional incandescent bulb and a move to more efficient lighting, by 2016. To illustrate the story the New York Times ran a picture of a Philips executive holding in front of him two illuminated bulbs: a 60-watt incandescent and an energy-efficient equivalent, his beaming face lit from below, making it look slightly ghoulish.

  As far as light bulb manufacturers were concerned, this was not a united front. GE had recently been campaigning against the elimination of incandescents. The company had revived some of its earlier research that sought to improve the efficiency of incandescent bulbs. (The technique later turned out to be ineffective and costly.) In calling for a phase-out, Philips had j
umped the gun. The company calculated that by setting the political agenda in advance and coopting the likes of the NRDC, widely viewed in Washington as the most effective environmental organization because it worked behind the scenes to effect change within the political process, and Duke Energy, a large US electric utility, it would be difficult for their competitors to oppose the initiative. Their hunch proved correct: GE and Osram-Sylvania soon signed up. The author of that bold strategy (and the executive in the picture) was Randall B. Moorhead, Philips’ chief lobbyist in Washington.

  On the wall of Randy Moorhead’s K Street of fice hung a photograph of himself with Ronald Reagan, under whom he had served as a young man. Politics was Moorhead’s passion. He had been involved in it all his life, or at least since he was in high school in Dayton, Ohio, back in the 1960s. As a youngster Moorhead had watched his father, an electrical engineer, build an electronics manufacturing company from scratch. The experience had left him a self-confessed “great fan of capitalism in the private sector.” Moorhead went to work for the Republicans “because that’s the party that primarily subscribes to the notion that government should be a little less involved in decisions on how to run your life, and how to run your business.” Less involvement did not however mean that Washington had no part to play: “I believe that [setting] minimum energy efficiency standards is a rightful role for the federal government,” Moorhead told me. During the 1970s and ‘80s he served in a variety of capacities for the Republican party, working his way up to a position as Director of Congressional Relations in the Commerce Department. At the end of Reagan’s second term, along with other political appointees he submitted his resignation, deciding that it was “time to go out and get a real job.” He joined Philips in 1989.

  For Moorhead, lobbying was like a game of chess: “I have to understand not only what I want, but what everybody else’s needs are, and how to move the men around the board to get everybody to the point where they’re happy.” In order to win the game, knowledge was the key. “I know members of Congress, I know their districts, I know their states, I know the political histories and cultures in their states, and I know many of them personally. So I will go to the ones that I think are most likely to share my view, and will find common cause with me, and will help me accomplish what I try to accomplish.” When Jeff Bingaman introduced his Next Generation Lighting Initiative, Philips was quick to rally round. The company signed up as one of ten founding members of the Next Generation Lighting Industry Alliance, a group established in 2003 to advise and partner with government. When Bingaman’s energy bill did not pass, Philips opened a second front. “In the American political system, there’s two things you do in Congress,” Moorhead explained. “You authorize the creation of a program, and that is followed by appropriating money to the program you have created.” Alternatively, lobbyists could appeal directly to members of Congress. “In the fall of 2002, we started to go to Capitol Hill and suggest that it would be a good idea, even absent the passing of the bill, to send money to the Department of Energy as appropriations to start the Next Generation Lighting Initiative.”

  It just so happened that Moorhead knew “quite well” Charles Taylor, the chairman of the appropriations subcommittee in the House of Representatives, who happened to be from North Carolina, in whose district Philips happened to have a factory. Together with representatives from the other lighting companies, Moorhead spent an hour and a quarter before Taylor, laying out the promise of LEDs. The delegation asked the chairman to appropriate $3 million for universities and companies to do basic research and product development on solid-state lighting. Having won Taylor’s agreement, the lobbyists then went over to visit Conrad Burns, his counterpart in the Senate’s appropriations committee, and repeated the same “dog-and-pony show” for him. Burns also agreed. The following year the lobbyists went back, this time asking for $5 million. In 2005, when the Next Generation Lighting Initiative was finally authorized in law, they were able to return to the appropriations committees and say, You need to increase the amount of money. Over the next few years, companies in the Alliance won grants for R&D to develop LED technology for general illumination. As of early 2011, Moorhead reckoned that Philips had received somewhere between $15 million and $20 million since the program began.

  In 2005, with the Energy Policy Act, it had been Senator Bingaman who took the initiative, then approached the companies for their advice on how to draft the legislation. In 2007, with the Energy Independence & Security Act, following the coalition’s dramatic commitment to phase out the incandescent bulb, the roles were reversed. This time, Philips led the way. After the public announcement at the National Press Club, Moorhead approached the legislators. His timing was perfect. In the wake of the 2006 mid-term elections, the Democrats had taken control of both houses. “We knew that twelve years of pent-up demand by Democrats to do the things they wanted to do was going to be released in a number of ways,” he told a reporter. “One of those ways was energy efficiency.” Moorhead told legislators that Philips would try to get the other companies on board. The politicians were delighted. “They did not know, frankly, that the industry could make a more efficient light bulb, and were willing to do that, and to work on crafting the legislation to do it,” Moorhead said. “So there was great receptivity on the part of Senator Bingaman and Senator Dominici and [their counterparts] in the House of Representatives. They encouraged us, they clearly wanted to do something like this, to pass an energy bill and to have a portion of that bill be about saving energy through making lighting more efficient.”

  The committees inserted “placeholder language” into the draft bill with the understanding that members of the coalition and other stakeholders would subsequently work out appropriate wording. The language would ultimately be replaced with a well-thought-out, carefully written piece of legislation that, as Moorhead said, “dotted all the political ‘i’s and crossed all the technical ’t’s.” Philips, together with the other companies, the NRDC and other energy efficiency advocacy groups got together and wrote some model wording. “It was all tied up in a package with a nice bow, and [the politicians] were very pleased to receive the present.”

  Negotiations over the bill took time. Delicate political considerations needed to be addressed. For example, California had already passed its own standards for lighting. The Californians did not want to be preempted. Eventually a deal was reached whereby, in exchange for accepting the new federal standards, California would be allowed to begin implementation of its incandescent phase-out one year before the rest of the country. Though the legislation was extremely thorough in its description of what was and what was not a light bulb, it was not prescriptive. The wording was made as technology-neutral as possible. After all, the goal was to reduce energy consumption, not to promote one particular type of lamp. Indeed, in addition to LEDs, two other technologies were also capable of meeting the standards: compact fluorescents and new, relatively energy-efficient, halogen-based incandescents.

  In practical terms the Energy Independence and Security Act required light bulbs to be approximately 30 percent more efficient than traditional incandescents. During a three year period, beginning January 1, 2012, the 100-watt bulb would be phased out, followed by the 75-, 60-, and 40-watt bulbs. It was anticipated that when the phase-out was complete American consumers would save at least $16 billion each year on their utility bills. The legislation passed in 2007, by an overwhelming majority in both houses. Three years later, however, as the deadline neared, rumblings began to be heard on Capitol Hill.

  An attempt to repeal the light bulb related provisions of EISA was launched by Republicans in September 2010. It was memorably dubbed the Better Use of Light Bulbs - BULB - act. This followed the recent closure by GE, with the loss of 200 jobs, of the last US plant which manufactured traditional incandescents. In fact, however, what lay behind the introduction of the bill was not so much what its proponents pointedly described as “Washington-mandated layoffs” as a ruckus
between two Republican congressmen. Joe Barton, a representative from Texas, had been chair/ranking member of the House energy and commerce committee, whose jurisdiction includes off-shore oil drilling. Barton had recently won national notoriety (and embarrassed his colleagues) for publicly apologizing to BP in the wake of the Gulf of Mexico oil spill. Now, in seeking to win an extension of his leadership beyond the six-year term limit, he set out to undermine the conservative credentials of his successor as chairman, Fred Upton, a moderate Republican from Michigan who had co-sponsored EISA. A scion of the family which founded the Whirlpool home appliance corporation, Upton well understood the importance of energy efficiency.

  Barton claimed that Upton had voted to ban the incandescent light bulb. The ban was, he said, “the perfect symbol” of the frustration many people felt about government bureaucrats interfering in their lives. The issue was not simply energy consumption, it was an outright attack on personal freedom. The nanny-state had no right to tell people how to light their houses. “People don’t want Congress dictating what light fixtures they can use,” Barton complained. Incandescents were cheap and reliable. The alternative was assumed to be compact fluorescents. CFLs were more expensive and also a health hazard (a reference to the tiny amount of mercury vapor fluorescents contain). Left alone, the market would decide which was the best bulb. Such an issue - bogus though it was, being based on a deliberate misunderstanding - was red meat for right-wing news media and talk shows. They immediately began urging voters to call their members of Congress. Soon light bulbs had become a cause célèbre among conservatives, the Tea Party in particular. “God’s own standard for electric light bulbs is being monkeyed with!” frothed one apoplectic blogger. light bulbs is being monkeyed with!” frothed one apoplectic blogger. watt bulbs. A new term of disapprobation entered the political lexicon: “light bulb liberal.”