Bill Gates on How Business Leaders Can Fight Climate Change

Bill Gates on How Business Leaders Can Fight Climate Change

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[MUSIC PLAYING] ALISON BEARD: Welcome to the HBR IdeaCast from Harvard Business Review. I'm Alison Beard. [MUSIC PLAYING] Bill Gates is one of the world's best-known entrepreneurs and philanthropists. After founding Microsoft and leading it for 25 years, he stepped down as CEO in 2000 to focus on the Bill and Melinda Gates Foundation. And he and his wife have to date donated more than $50 billion to improve health, sanitation, financial services for the poor, and agricultural development around the world. This is a man who works with governments, nonprofits, and private organizations to try to solve massive global problems.

And right now, in addition to the pandemic, he's paying a lot of attention to climate change. This is obviously an issue that affects all of us, from emerging market farmers to developing countries CEOs. And it's one that's expected to create exponentially bigger challenges in the future if we don't do something about it now.

His new book is called, How to Avoid a Climate Disaster-- The Solutions We Have and the Breakthroughs We Need. It's written for leaders in every sector. And it's a blueprint for fixing this mess we're in. He recently sat down with Harvard Business Review editor-in-chief Adi Ignatius to speak about how we work together to tackle the climate crisis and other big ones like COVID-19.

Here's their conversation. ADI IGNATIUS: So, Bill, welcome to HBR IdeaCast. BILL GATES: Thank you.

ADI IGNATIUS: So let's get right into it. Your call in this book-- and, obviously, others have replicated that-- is to get down to net zero carbon emissions. Your argument is to do that by 2050.

Can you talk a little bit about where we are now and the magnitude of getting from where we are now to net zero? BILL GATES: Well, if you ignore economic crises or the pandemic, we really haven't gotten on a track to reduce emissions at all. They keep going up. To go all the way down to zero by 2050, we need to start having every year, in and out, dramatic declines.

As long as you're emitting greenhouse gases, the temperature of the earth keeps going up. It's only when you get to zero that you can actually say, OK, we've done what we need to avoid-- particularly for people living the equator-- you know, things being so hot that they really can't do outside work or having the ecosystems collapse because of this rapid change in heat. And so that goal has been broadly discussed and had a plan that says, OK, where do we need to be on cement 10 years from now, 20 years from, now or 30 years from now when all those cement plants will either have been changed or completely replaced? The size of the physical economy and the fact that it's not like the digital economy in terms of how quickly it can change and the amount of capital and current practices that are hard to change, I'm really amazed by the industrial economy. It's you know it's a miracle that all these things are so cheap and they're so reliable people almost ignore them. But here now, they really need to pay attention to a lot of those areas because we need policies and companies that are saying, this clean approach can come somewhere near to the price of the current dirty emitting approach. ADI IGNATIUS: You note in the book that if we reduce our carbon emissions in half, that would slow things down, but would only postpone and not prevent a climate catastrophe.

Now I know you call yourself an optimist. That, to me, is a scary observation. I guess my question is, when have we ever moved so quickly to achieve something like a 50% improvement rate when the stakes are so high? BILL GATES: No, this will be phenomenal. This will be the most amazing thing mankind has ever done.

This scale of change just hasn't happened. You see projects like making a vaccine for coronavirus, that went quickly. But that's far, far easier.

In fact, that built on top of a lot of investments that the Gates Foundation and others have made over the last decade in that mRNA approach. So it is daunting. And it's important that we not spend money on just reducing usage of cement by 15% or, you know, electricity by 15%. You should save your money for the innovations that let you multiply by zero because, after all, on a global basis, we still have a lot of people in developing countries who deserve to have more shelter and more electricity and lights at night and ability to move around.

And so although the US, we could reduce our emissions as much as 40% by behavior change, that still doesn't get you to zero. And, most importantly, it doesn't solve for places like India, who need more of these emission-related services, to create a decent lifestyle for their population. And they haven't done the historical emissions.

So it's up to the rich countries, particularly the US, who has so much of the innovation power, to invest in and come up with approaches that bring these green premiums across the board down to either zero or very near zero. ADI IGNATIUS: So in the book and elsewhere, you've talked about green premiums, which is the amount extra one would have to pay for a low or no carbon substitute. You know, one example you have is zero carbon jet fuel would cost an additional $3.13 a gallon, which is 140% of the price of normal jet fuel now.

So the green premium is how much we would need to pay in excess for a zero carbon alternative to what we have. As you say, if the green premium is pretty small, we should adopt it. And if we're not adopting it, figure out what the political barriers are.

And if it's high, that's where we should sort of focus our R&D spending. But do you want to-- you want to talk a little bit more about that? Because it seems like it's a handy concept. BILL GATES: I would say the key metric to say we're going to get to zero is how much we're bringing these premiums down to an acceptable level. You know, rather than just focus on a few of the categories, if we compute these green premiums across all areas of emissions and we track over the next 10 years what innovative companies are doing to bring those down, that will give us a sense of we're going to get there or not. You know, do we need to increase R&D budgets even more? Or do we need to create policies that require-- like California has this thing where some of the cars have to be zero emission cars. And once that market got up to a certain scale, then they help drive it to the next level of scale.

On some of these products like steel, it's very hard because the steel isn't any better. It's just the same steel. In fact, if you make it in a slightly different way, the industry is very conservative about, will that have some fatigue or brittleness problem? And so encouraging the building codes and the industries to be open-minded as we start to get on that learning curve will be very critical.

But the green premium is, in a sense, the ultimate measure because if it's very high, you're having to use brute-force things, like carbon capture. And you won't get all the countries of the world to step up and do it. People often read about some advance that somebody says, oh, this will be the equivalent of X cars or Y houses.

The fact that that's such a tiny, tiny percentage of the actual emissions isn't clear to people because the different way they talk about it, you know, only the most climate-literate person can map those various things into an actual number and say, wow, is that a rounding error or is that a significant development? And so most people who read articles about climate advances don't have a framework. ADI IGNATIUS: So the price tag for everything that we would need to do globally to get to zero is enormous, of course. I said as much recently to Mariana Mazzucato, the economist at University College London who said, you know, money can be created. When we go to war, we never ask whether we have the money. Is there a parallel-- I mean, if climate change is viewed with the same kind of unity and seriousness as a war challenge that we can come up with the money? So it seems like the political equation is pretty important.

I mean, how do we-- how do we-- you know, how do how do you think about that part of this whole argument? BILL GATES: Well, the more you look at the politics, the more you see that the brute force approach of just paying those green premiums, even though it will reduce people's incomes a lot, is not tenable. That is, you know, there's not the depth of belief that we're going to elect presidents again and again and again who want us to use this brute force hyper expensive way of doing it. And when a new president comes along, the one thing you can be sure of, they won't repeal innovation. So innovation is the only way to square this-- the only way to square it for the US and the only way to square it for the developing countries.

And, yes, we need good policies. We need a larger R&D budget. We need some, either a carbon tax or per sector type requirements to try to drive the demand. You know, what happened with solar panels where they had huge tax benefits, that did survive both Democratic from Republican administrations that over a period of time help subsidize that learning curve to where the need for that subsidy is almost gone at this point and so that money can be put into the next area, like storage or aviation fuel or steel or cement. So policy will be very important.

But the trillions of dollars that are discussed-- were discussed in political campaigns, they're not likely to emerge because, you know, assume the presidency is going to go back and forth over the next 20 years, that is just an unbelievable sacrifice to put that kind of money out. We need a plan that at the tens of billions level fosters these innovations, you know, taking advantage of scientific progress. ADI IGNATIUS: There is a section of the book that seems to be very Bill Gates, which is the argument of increasing the supply of innovation. You know, how do you-- how do you how do we lead a process to increase the supply of global innovation? BILL GATES: Well, we have some models. So, for example, the United States funds in the medical realm the National Institute of Health at like $37 billion a year.

And that's led to huge advances in, say, cancer treatment and many other areas. And the US should be very proud of that because not only does it help improve our health, it improves health in the entire world. And it means a lot of the companies that make those products are based here or have the vast majority of their jobs here in the United States. And so that's worked out incredibly well. You know, at first in the war on cancer, which goes back to the '70s, they were overoptimistic about how quickly it would be done.

And, yet, even though it's taken longer, it's been extremely worthwhile. And so the R&D where you just publish your results and everybody learns from everyone, ideally we would double that up to a level not too far away from the NIH. And so that's a very, you konw, concrete proposal that we're putting forward in the Congress. And I think has at least some chance bipartisan support.

The next piece is you want to get risk capital to come in. And that's when I, in 2015, said to the governments, hey, raise your R&D budgets. They said, well, these venture firms aren't going to take this green stuff anymore.

Can you commit to us that there'll be billions out there to take it out of the laboratory? And so I called up a bunch of people and Breakthrough Energy did its first fund that was over a billion. We just raised a second fund that's over a billion. And so that's there, you know, to go looking into the universities or the national labs and say, OK, what's ready? Breakthrough Energy's been done, so it's a 20-year format. It's longer term and more patient than typical venture stuff. And it only works on things-- it's unfunded 50 companies in the first fund and they'll do the same in the second.

It only funds things that if they're successful, it eliminates over a half a percent of the emissions. Some are much higher than that, but that's our minimum threshold to get involved in an area. So it's very narrow. But because of that, it has incredible expertise on clean hydrogen and carbon capture and clean steel. And we have an amazing scientific team that works only on that.

And that, for a lot of our investments, we're able to bring in other capital because we've done the scientific due diligence and the other funders can bring management expertise or political expertise. And so we haven't had to fund, so far, any of these companies ourselves. We've been able to bring in lots of other high risk money. And so that's gone better than I would have expected five years ago when I committed to the governments that this piece would be there to help the journey from the lab to the market. ADI IGNATIUS: You've talked over the years about how nuclear energy can be really critical to creating a sort of non-carbon future. And I'm sure over the years, people have said, "What? You know, that's what Bill Gates thinks?" That's a surprise to some.

In the book, it seemed like you do make that argument somewhat sparingly. I mean, I almost sense that you believe it's critical to solving the problem, but that you question whether there's the will, at least in the US, to seriously pursue that. Is that an accurate reading? BILL GATES: Yeah, so there's three paths.

The electricity thing is much, much, much harder than people think because the intermittent nature of most of these clean sources-- wind and sun-- as you get up to high percentages, you lose reliability. And there's only three ways to deal with that. One is to have a miracle of storage, which means grid storage batteries like 20 times better than what we have today, or to have lots of nuclear fission, which has huge societal acceptance problems in terms of the safety and the reactors that have been built recently have been way, way over and noneconomic, particularly compared to natural gas generated electricity, which is so cheap in the United States, or nuclear fusion, which is much earlier in its scientific progress and you wouldn't want to count on it during the time frame that we're talking about.

The electric sector is going to have to be over two and a half times bigger because to be clean, you're going to be heating your buildings with electricity, with what's called a heat pump. And you're going to be-- you'll have your passenger cars. And even some of the industrial processes will move over to use electricity because, you know, we still need-- the energy has got to come from somewhere.

If it's not coming from hydrocarbons, what is the-- the large-scale clean thing. So, yes, I didn't want to have the book come across as a promotion of TerraPower, which is the most likely approach if nuclear fission's going to work. It's not the only company out there, but there aren't many. But I wanted to be pretty neutral to the different paths. You know, sadly, a lot of people think the storage miracle has got to be achievable.

But it's not. There's a good chance you just can't get that type of energy storage. And I use Tokyo during the typhoon is sort of paradigmatic.

Pay-- that for 10 days would take more batteries than the world is ever built. You know, the batteries we have today are not either economic or scaled for, you know, providing that reliability of this greatly expanded electricity supply. ADI IGNATIUS: So I want you to try to communicate your sense of optimism to our listeners, so. And maybe, maybe we can talk sort of sector by sector.

So start small. You know, what is it that individuals can do to make a difference maybe collectively to move the needle? BILL GATES: Well, there are products that are clean products, like the Impossible Burger or Beyond Burger, you know, things where you use less materials. There's buying an electric car. You can switch your consumption to help drive demand so that the clean products get the scale so that their costs go down and therefore you're helping to drive that green premium to zero. Your voice in terms of policy, the politicians that get elected, is probably even more important than that because they've got to fund the R&D. They've got to create the policies that over time you get requirements for more clean steel, clean cement in various projects.

And keeping this cause alive on a constant basis, you know, innovation isn't something you can do for four years, then stop for four years, and then try and do again. You know, getting that tens of billions to be a consensus across party lines, you know, that alone, if I had one wish for the US's doing its part of this thing, that would be probably at the top of the list. You know, we need people to speak out about this being a priority.

Eventually, we'll literally have things where you can write a check and it goes towards the funding demand for these green products so that as that volume goes up, you do repeat what happened with solar panels and wind. ADI IGNATIUS: So then to go one rung up, what is it that-- that companies-- that employers can do to move the needle? BILL GATES: Well, employers have a lot of purchasing power. You know, they can look at like their employees' travel and go buy clean aviation fuel, which has quite a premium today.

You know, they can look at what they do in terms of building buildings. And they can take capital and invest it in these very high-risk breakthrough companies. You know, they can develop an expertise, whether it connects to their business or not, and help the pool of capital there be a lot larger. And they can make sure that they're not holding back policies.

You know, if you're in the construction business, you might think, gosh, expensive cement may hurt my business. Well, hopefully, if you take the broader picture, you just want to help figure out, OK, could we use less cement? And what is the process that you get to multiply that times zero? You know, how achievable is that? So every company, particularly the ones that are very successful like the tech companies and finance companies, I do think people will look at their behavior in this area as one of the ways they decide, you know, are you a net contributor to improving society? And hopefully that affects both customers and employees. ADI IGNATIUS: And then, you know, one more category, so institutional investors, I mean, you, I think you were sort of saying that divestment won't make much of a difference, divesting from fossil fuel companies. But if big institutional investors really get out of that sector, doesn't that spur action elsewhere? And-- BILL GATES: Not at all.

I mean, they might-- it's good for the cocktail party they're going to that night. But are people going to stop using cement because some Wall Street guy is divesting? I mean, what's the theory there? There's no connection. Now, if they if they fund high risk capital for great innovations, if they invest rather than divest and they invest in things that relate to these green premiums, then, yes, they're part of the game. But the idea of whether a bond goes to a solar farm at the same interest rate as it goes to a car factory or a new apartment building, we don't have two different yields-- the yield on the clean stuff and the yield on the other stuff. You know, the term green finance is this pretty ill-defined thing.

And the idea of making people report numbers, that's a nice thing. But, you know, a cement company is providing basic shelter and roads. And so only somebody who says, OK, I'm going to live in a tent and never get on the road, OK, then you actually are saying maybe society should live without cement. But that's, you know, that's not realistic. So the people should understand what their theory of change is that will make developing countries provide all these services in a clean fashion. ADI IGNATIUS: And then the final category-- and I know we're almost out of time-- is, you know, governments and policy.

And it seems to me that, you know, on the one hand, you put your faith in innovation. And that can be spurred by governments or can be spurred by, you know, people just trying to come up with profitable innovations. You know, but then there's the whole category of incentives, of subsidies, lack of subsidies. You know, is that is that the biggest, you know, the area with the biggest potential to move the needle on this? BILL GATES: It's the most important area that we need in democracies a lot of the citizens to care about, you know, so that politicians feel they have a mandate to work in these areas. Without government creating demand for these products and allowing, you know, a new way of doing steel to get certified because it's slightly different, people will be conservative about any change because we know the old stuff so well, we know that it lasts a long time. Without government, we're not going to get this done in 30 years.

In fact, a hard part of this is that even if all the rich country governments go along, the less wealthy countries-- middle income and others-- you know, how do we make it attractive for them to come along? The fact that this is global in nature and it's not solved country by country, that makes this extra hard. And so we need the-- China, the US, Europe, Japan, without all of those, both, you know, using their research and innovation power in a big way and then driving demand for these products, without those, you know, we're just not going to get there. But then even once those make enough progress, you have to bring in Brazil, India, Mexico, Indonesia, Pakistan, where in terms of the physical economy, most of the increase in demand is coming out of those countries. And so that determines, do you go up from $51 billion, which you can? Or do you go down all the way to zero, which, you know, is even the per year reduction that we need to get there is greater than we've ever achieved? ALISON BEARD: That was Microsoft founder and philanthropist Bill Gates in conversation with Harvard Business Review editor-in-chief Adi Ignatius. Gates' new book is called How to Avoid a Climate Disaster-- The Solutions We Have and the Breakthroughs We Need. You can also find more of this interview in the March-April issue of Harvard Business Review.

This episode was produced by Mary Dooe. We get technical help from Rob Eckhardt. Adam Buchholz is our audio product manager. Thanks for listening to the HBR IdeaCast. I'm Alison Beard.

2023-01-12 22:11

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