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Kohlberg: Make Alternatives Affordable

Today there is much fear, loathing and despair about solving what seem to be an abundance of intractable problems facing our world. No doubt health care is one of those problems, but climate change is the one that Congress and the White House must act upon and for which solutions cannot wait. It is clear there is no one panacea to stop sending $200 billion a year overseas to pay for oil or how to reach agreement on capping carbon emissions. The solution lies in using the most powerful force in the world — economics.

[IMGCAP(1)]Solving any problem requires identifying the source of that problem, the flaw from which all negative consequences flow. When it comes to climate change, this flaw was identified centuries ago and called by economists as the “failure of the commons— or more plainly, if everyone owns it, no one cares for it. Every one of us owns the environment, but we can’t reach consensus on how to care for it.

Ironically, while there is a solution to this problem that is economically simple, the political calculus is far more difficult. Basic economics will propel climate reform if we make high-carbon sources of energy more expensive, because at this moment carbon emissions are free. This is the essence of climate change legislation correcting market failures that endanger our long-term economic survival, and thereby correcting the failure of the commons. Thus the solution is economically simple, yet politically difficult.

Such a solution will make alternative technologies more cost-effective, and the market will make a thousand clean-tech flowers bloom, but only if we allocate the costs of climate change and carbon creation to high-carbon sources of energy over time.

Even more egregious than turning a blind eye toward a simple economic solution is the lack of insight and recognition that many of these technologies already exist and are here today. We simply need to make them grow in the right economic soil. It will take a powerful combination of alternative energies to achieve carbon neutrality and energy independence.

Congress can recognize this by addressing the 60-month problem, rather than the 60-year problem. The most well-known clean energy sources, such as wind and solar, have helped us to gain ground in becoming energy independent, yet they are still expensive compared with conventional power-generating sources, and they are not a complete solution because they are intermittent. While access to these technologies is improving, there are short-term obstacles that prevent full integration. The biggest of these is that they are remotely cited and require vast investment in additional transmission, grid and storage infrastructure. Thankfully, there are other emerging technologies that generate power at the source of their use, reducing or eliminating these costs.

One of these technologies is the fuel cell. Fuel cells have orbited the Earth in spacecraft for decades and have now emerged as a clean energy source for homes and businesses. Many fuel cell installations are distributed power generators, which means smaller units, like a water heater or furnace, are installed at the place of use, with no unsightly power lines leaking energy every mile traveled. Fuel cells cleanly convert natural gas to hydrogen and can reduce carbon emissions by more than 30 percent. They are more than 10 times more productive than solar power, and in certain configurations, more than 80 percent efficient. In many cases, they can pay for themselves in three to five years, half the time of a solar installation. And so by reducing the amount of gas used to generate a kilowatt of power by 40 percent, they attack the 60-month problem of efficiency.

Any number of more efficient technologies are ready now to help us address climate change and save consumers money, but they must have the support of elected leaders and national climate policy. After these new technologies become profitable, those supports can fall away. If we don’t invest in these technologies now — in the next 60 months — the next 60 years will be dark indeed, and unnecessarily so.

James A. Kohlberg is a founder of Kohlberg & Co., a private equity firm, and chairman of Kohlberg Ventures, which has been investing for more than 10 years in early stage media, entertainment, Internet, specialty consumer products and health care companies. Kohlberg Ventures is a principal investor in ClearEdge Power Inc., a manufacturer of distributed power generation appliances.

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