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Moderator:
Osmar Abib, Managing Director, Global Energy Group, Credit Suisse

With crude oil futures approaching $120 per barrel, it's no wonder that this breakout session on future of oil and energy attracted significant interest from attendees. Moderator Osmar Abib of Credit Suisse highlighted the rising prices of oil and gas and the complex relationship between oil prices, interest rates, inflation and the strength of the U.S. dollar. He cited an OPEC official who asserted that there is no supply problem because there are no lines at the gas pumps and that the more immediate problem was the rising price of food. Abib emphasized that it is time to recognize the need to address the rapidly increasing demand for energy from developing economies.

Karen Harbert of the U.S. Chamber of Commerce stated that the demand for energy will increase 50 percent between now and 2030, with 70 percent of that figure coming from developing nations. India and China alone will account for a significant portion of increased demand. To address the problem, she said, approximately $20 trillion in new investment across various technologies is required. Unfortunately, there are several barriers to get the money flowing, including resource nationalism. She also emphasizes on the lack of sufficient investments necessary to meet the demand.

What does this mean to the price of oil? Antoine Halff of Newedge predicted that price volatility is here to stay. According to him, producers no longer find it necessary to increase production to maximize profits; now they are focused on capturing the rent (controlling the market), even if it means curtailing production. He also believes that renewable sources will constitute a small fraction of the overall energy supply.

Robert Cavnar of Milagro Exploration cited access restrictions to energy sources as a supply impediment, noting that most of the wells his company drills these days are at least 14,000-16,000 feet deep, up to a mile deeper that wells that were dug just a few years ago. In contrast to Halff's assertion that renewables will constitute a small niche in the overall future energy supply, Joseph Stanislaw of the JAStanislaw Group said he was certain that renewables will emerge to become one of the main sources of U.S. energy. Although passionate about renewable energy, both Stanislaw and Harbert agreed that the United States cannot get away from reliance on traditional energy. Nor is it good to demonize oil and gas, which continue to fuel the existing infrastructure. Instead, they suggested, oil and gas will have to become bridges to a renewable-rich future.

The panelists also discussed the relative advantage that the national oil companies have over their international counterparts. Yet despite having access to huge reserves, national oil companies are reluctant to invest in exploration. This must change, the speakers agreed.

Another important factor affecting the growth of the energy sector is the availability of talent. "We're having a difficult time sourcing technical people," said Robert Cavnar of Milagro Exploration, who added that while experience is valuable, his average engineer is 55 years old. Russia, he said, has done a tremendous job of training skilled petrochemical engineers, but international oil companies find it hard to recruit them.

Nuclear energy, panelists agreed, is the elephant in the room, capable of filling the energy gap between supply and demand. But the nuclear industry suffers the same problems: a lack of materials (uranium), engineers and capital.

In conclusion, panelists concurred that the political environment isn't yet even conducive to a long-term focus on energy demand. Changes in the regulatory, fiscal, legal and diplomatic realms will have to come first.

Moderator:
Richard Saines, Partner, Baker & McKenzie LLP

The U.S. legislative response to climate change and the relationship between legislation and the capital markets was a theme that ran through this session, which opened with an overview of the current legislative draft process in Washington.

Congressman Rick Boucher, a Virginia Democrat and chairman of the House Subcommittee on Energy and Air Quality, stated flatly that "the debate about 'yes-no' climate change legislation is over," and for two reasons: From scientific point of view, he said, there is no longer doubt that carbon dioxide contributes to global warming and climate change. Second, the Supreme Court has ruled that CO2 must be classified as an air pollutant, and that unless the Environmental Protection Agency can prove that it does not pose a health threat, it must be addressed and regulated.

It is clear that there the United States will see federal legislation to put mandatory controls on CO2 and other greenhouse gas emissions, said Boucher — what is not certain is when legislation will come. He said he hopes for bipartisan agreement, following the tradition of previous clean air acts that protected businesses against economic disruption and therefore obtained wide industry support.

Boucher put the odds of passage at about 50 percent this year and 80 percent in the first two years of the next congressional session, but said the current plan is not to forward any draft legislation until there is support from industry and across the two aisles of the House.

The ongoing drafting process is complex and must be written to address all economic sectors, he said. The goal is to make sure that "no sector of the economy will be dislocated." Legislation would include both transportation and stationary sources of greenhouse gas emissions.

The proposed "cap and trade" system could be similar to the sulfur dioxide program now implemented in the United States. The goal by 2050, said Boucher, is to reach a 60 percent to 80 percent reduction in emissions from current levels. Legislation must take into account the U.S. dependence on coal for electricity.

Moderator Richard Saines of Baker & McKenzie then turned to the different industry representatives. Greenhouse gases and climate change are certainly "a huge issue coming down the road," said Joseph Pettus of Safeway Inc., which already invests in such clean technologies as solar panels and a bio-diesel truck fleet. In California, where legislation has already been enacted to require greenhouse gas reductions starting in 2012, companies are looking at ways to become compliant with the state law while still remaining profitable.

Richard Sandor of the Chicago Climate Exchange, emphasized that it is critical to start looking at carbon as a commodity. But in order to do that, he said, "we first need to define the commodity." He pointed out that legislation must be careful to define what is included and what projects qualify as credits and offsets. He also stated that legislators must become well informed in order to address the complex issues involved. "We don't want to discourage companies from investing in carbon reduction technologies," he said, adding that finding the right middle point is a challenge.

Blake Schaefer of Stark Investments talked about price caps on carbon emissions. A price cap "can prevent the international linkage," he said, noting that on an international level, the United States must show that it is taking climate change seriously. Panelists generally agreed that it is important to include monitored and verifiable international offsets, and to make sure U.S. markets have linkage with the EU, Japanese, and Australian carbon markets. Schaefer mentioned that there is now a good assurance that projects are verified and that "a saved ton is a saved ton," which would support the inclusion of international projects as part of offset mechanisms.

All emphasized the need to reduce emissions in the cheapest way, without punishing polluters. They also discussed carbon sequestration as an important part of the package that need to be considered, as does the problem of deforestation.

Pettus, who said that Safeway is committed to a 6 percent reduction in its emissions by 2010, urged legislators to allow companies to be pro-active and warned of the consequences if a cap-and-trade program ended up looking more like a cap-and-tax program.

Moderator:
Stéphane Voisin, Head of Sustainable and Responsible Investment, Crédit Agricole Cheuvreux

There are two periods of the European Climate Exchange, or ECX, so far: the pilot phase, which began with the birth of the exchange in 2005 ran through 2007, and the Kyoto phase, which began this year and continues through 2012. Now over the rough patches in Phase 1 and solidly into the second phase, the ECX offers the world and the United States, in particular, one clear lesson from its experience: carbon trading does work.

The ECX currently provides cap-and-trade for 11,000 industrial plants, representing approximately half of all carbon emissions from the entire EU. There has been free banking and borrowing during each period, but not from one period to the next (which turned out to be problematic as prices dropped at the end of the first phase in anticipation of the transition). This has produced six preliminary results according to Christian de Perthuis of Caisse des Dépôts and the University Paris-Dauphine.

1. First, in less than three years, the ECX has become the largest carbon market in the world, expanding from 7.9 billion euros in 2005 to 38.3 billion in 2007.

2. Europe now has a real carbon market price.

3. Europe has seen between 5 megatons and100 megatons of carbon abatement per year from 2005 through 2007.

4. There has been limited impact on electricity prices, despite previous fears.

5. As an open market with an established carbon price, the ETX has driven the creation of new environmental projects elsewhere around the world.

6. Any link between future U.S. carbon abatement programs and the EU would exponentially bring opportunities on all sides, the United States still being potentially the largest carbon market on earth.

Neal Eckert of Climate Exchange PLC noted that $600 million a day is currently traded on the ECX. The total should increase further, thanks to recent incursions of big investment firms that offer structured plans to consumers. Eckert explained that "fuel switch" is the big driver in energy trading, and that "thanks to the ECX, if you trade energy today, you need a carbon desk." The ECX has two separate programs, one domestic, and one international, and Eckert said it was his one big wish that the United States would become involved in the international program.

According to Tim Yeo, Chairman of the Environmental Audit Select Committee of the U.K. House of Commons, if one is to fully understand the trajectory of policy regarding carbon trading, one must understand it within the context of the urgency of global warming, which every day appears to be happening at a much faster rate than previously understood. If we continue "business as usual," he said, the planet could hit its tipping point within 50 years. Yeo maintained that limits far in excess of Kyoto will be necessary to avert calamity. What the past two-plus years of ECX activity have shown is that market incentives coupled with government regulation (i.e., cap-and-trade) are the best way for this to occur. The ECX includes 27 countries, and that given the scope and size of the players in the market Yeo said, the first lesson to be learned is that caps have to be tight enough to force reductions in the face of enormous lobby pressure to the contrary.

The second lesson, according to Yeo, is that the auction of allowances is the most effective way to incentivize trade. By comparison, the existence of heavy taxation on engines in Germany, and the total failure of the same to effect production of cars, are perfect examples of why a carbon tax will not work.

The third lesson, said Yeo, is that the market must include as many industries as possible, and as quickly as possible. Lastly, low carbon industries will show the fastest growth under the market conditions established by the ECX. Yeo beseeched the Americans in the audience to get the United States on board with a cap-and-trade program ASAP.

Electricity is responsible for 40 percent of carbon emissions in the EU, but it is important to recognize the role of electricity in reducing carbon emissions in other sectors via clean-tech electricity generation, such as solar power, and in turn fuel switching from different sectors, e.g., coal. In contrast to Yeo′s assertion that market forces are the fastest way to achieve carbon abatement (and while agreeing that more auctioning would be the best way to facilitate growth), Jean-Yves Caneill of EDF Group asserted that specific policies will be necessary to allocate money from auctioning into R&D for clean tech.

Returning to the theme of electricity as part of the solution, Erich Merkle of Solar*Tec AG cited solar-generated electricity as a zero-emissions source. With a one-time investment, solar panels will yield a fixed income for 20 years, he said. The total cost of production will be levied on consumers at the rate of only 2 euros per month on average. More than 50 percent of all photovoltaic (PV) installations are currently in Germany and have gone up in only the past few years, prompting other nations, most notably Spain and Portugal, to join in. In 2006, he said, more than 214,000 jobs were created in PV, with a 23 billion euro turnover per year, representing 100 million tons of carbon reduction. PV now represents an investment opportunity in its own right, he said, adding that power generation occurs during daylight hours, the hours of peak usage.

In response to a question from the audience about the potential for carbon asset trading to bolster pollution rather than alleviate it, by allowing the bigger polluters to buy their way out of abatement, all panelists asserted that market forces will bring about greener technologies on their own and that policy-driven reduction on caps is essential to the entire experiment. Personal or individual trading will incentivize the greening of the housing and transportation infrastructures, said Yeo, but he conceded that this too must ultimately be policy-driven.

How exactly this fits into any dogmatic attachment to a free and unregulated market is unclear. What is clear, however, is what is getting results in Europe — and in turn what must be done in the United States, regardless of whether it upholds the popular economic model of the hour.

Moderator:
Joel Kurtzman, Senior Fellow, Milken Institute; Executive Director, SAVE; Publisher, The Milken Institute Review

This panel addressed the opportunities and challenges for nuclear power from a variety of regional and economic perspectives. Representatives from the U.S. and British public sectors, the electricity industry and the scientific community broadly agreed that new investment in nuclear technology is technologically and economically feasible, but they predicted that political opposition will likely continue to slow development of the sector in the near term.

Lady Barbara Thomas Judge of the United Kingdom Atomic Energy Authority noted that the political environment in recent years has prevented her agency from building plants; now they are exclusively in the business of decommissioning them. But she believes that nuclear power is now back on the agenda in her country. Citing a statistic stating that nuclear power could be "cost effective at $40 per barrel," she asserted that current oil and natural gas prices make nuclear energy an important part of any country's energy portfolio. She further pointed to France, which derives 80 percent of its energy from 59 nuclear power plants, as a nuclear power success story.

Richard Meserve of the Carnegie Institution discussed U.S. regulatory issues from his perspective as the former chairman of the Nuclear Regulatory Commission (NRC). He noted that the existing nuclear plants provide by far "the cheapest power on the grid right now," providing power without worsening climate change. Nuclear should make sense but it faces regulatory hurdles that politics may keep in place.

Meserve also described reform of the nuclear plant licensing process by the NRC. Historically, a plant operator would have to acquire a license to build a plant and then a second license to operate the plant once it was built. Nuclear power opponents would hold up this second licensing process, creating substantial regulatory risk for plant developers. The new process streamlines the two procedures into one, but may still pose significant delays that will affect the economics of plant investment.

The perspective of the private sector was provided by Michael Morris of the American Electric Power Company. He agreed with Meserve's comment about the tremendous cost advantage of power generated by existing plants but cited the economic challenges of new investments. He offered the example of North Carolina-based Progressive energy, which filed for a license to build a $17 billion plant, while their market cap was only $12 billion. Nevertheless he noted that China and India are currently building a combined 43 nuclear plants, and he felt that not doing so for political reasons was a mistake.

Marianne Walck of Sandia National Laboratories emphasized nuclear energy's technological viability, focusing specifically on the safety and security testing undertaken by Department of Energy labs with respect to waste transportation and storage. She described rigorous testing of the transport containers that included dropping them on reinforced steel surfaces with spikes, and setting the containers on fire. She is confident that the technology and safety controls are there, concluding that "most if not all of the barriers we face to nuclear energy are political."

Speaker:
Kevin Walsh, Managing Director, Renewable Energy Group, GE Energy Financial Services

Interviewer:
Quentin Hardy, Silicon Valley Bureau Chief, Forbes

If we are going to place blame for the environmental crisis on anyone, said moderator Quentin Hardy of Forbes by way of introduction, it should rest squarely on the shoulders of Thomas Edison. Without Edison's inventions, after all, industrialization could never have undergone the rapid expansion and development of the past hundred years necessary to land us in our current predicament with carbon emissions. (Nor, of course, would the inhabitants of the developed world be able to enjoy the benefits of these self-same innovations.) It is therefore fitting, if ironic, that Edison's General Electric should now take a leadership role in greening the power industry, he said.

Hardy's questions for Kevin Walsh, known by many as "the sugar daddy of renewables," ranged from the soundness of green investment in areas that so far have yielded small returns to whether or not the whole notion of "green" is merely hype.

Responding to Hardy's question about the limited returns on green investments, Walsh insisted that returns must be sound or the innovations will fail in the marketplace. GE applies the same due diligence and rigor to green projects that it applies to any other investments it underwrites. But he pointed to one indication of his belief in the security of this new direction: His team began with six people handling $800 million of investment and has grown to 38 people and $4 billion.

Walsh repeatedly emphasized the need to maintain a global perspective on climate change and green technologies. GE must maintain national competitiveness in the face of enormous growth of renewables in Europe and elsewhere, he said, noting that investment in renewable power sources also provides protection against rising oil prices. The president of OPEC recently declared that the price of oil may well hit $200 a barrel, and while renewable energy is no "silver bullet," it can act as a buffer against the full impact of oil price fluctuation. Naturally, in this light, the greater the percentage of renewables of the total energy budget, the better.

In a discussion about the volatility of the energy investment climate and, specifically, the relationship between the dollar and the price of oil (if the dollar strengthens, the price of oil falls), Walsh responded simply that the volatility of the dollar is exactly why investments in solar and wind technology — which beyond initial outlays for infrastructure are not pegged to the dollar — are the nation's best bet for future energy security.

Proven technologies make the soundest investments, said Walsh, in response to a question about which technologies in particular interest him. And sound investment is his top priority. Tidal, or lunar, energy is interesting, but it's a relatively risky investment. His preferred technologies include not only solar and wind power, but also geothermal, biomass and hydroelectric energy. GE is interested in partnering with other companies, such as Google, that may have higher comfort levels with risk, he said.

Speaking to the question of biofuels, Walsh called for the "electrification of transportation." Ethanol from corn is simply not efficient enough to be sustainable with an energy balance of roughly 1.3:1, compared to a ratio of 8.3:1 in ethanol from sugar cane. Biodiesel, he said, is better, but a biodiesel hybrid might be the best type of transitional technology as the United States heads toward fully electric-, solar- or wind-charged vehicles.

Is green just the flavor of the month? Hardy asked. Walsh responded that the entire international scientific community is on board with the reality of climate change, and left it at that. And to a final question about whether a greening of America's energy budget an electrification of transportation is just "too visionary," Walsh replied emphatically that "it's a risk worth taking."

Moderator:
Joel Kurtzman, Senior Fellow, Milken Institute; Executive Director, SAVE; Publisher, The Milken Institute Review

SAVE, the Strategic Action Volunteer Effort, was launched by Mike Milken in 2006 with the goal of seeking market-based solutions to pressing issues. Its first initiative is "Achieving Energy Independence" and addresses the issue of U.S. dependence on oil and other greenhouse-gas-emitting fuels. The goal of this session was to track the progress and highlight the breakthroughs that have been made over the past year.

Moderating the session was Joel Kurtzman, SAVE's executive director, who was joined by SAVE co-chair G. Chris Andersen of G.C. Andersen Partners, along with Richard Kauffman of Good Energies, Jonathan Malkin of ATP Capital, Joseph Pettus of Safeway Inc., Richard Pietrafesa Jr. of Destiny USA and Thomas Urban of CellFor. Inc.

Kurtzman explained to the audience the basic principle behind SAVE: that capital markets are better equipped than government mandates to help achieve energy independence. "Organizing the private sector and educating it about the advantages of disconnecting from fossil fuels is the goal of this initiative," said Kurtzman, who then highlighted some facts in support of this view, such as the rising rates of investment in clean technologies, the relentless rise in oil prices and the volatility of many oil-rich nations.

It is especially crucial now to advance alternative energy sources, said Anderson, adding that the private sector can take charge in making a difference as the country moves energy independence to the front burner. The private sector is the springboard for creativity, ingenuity and innovation, he added, pointing out that while his own company is investing in alternative energy technologies, alternative energy companies and ideas established just a few years ago haven't revisited their pricing strategies in light of rising oil prices and other current economic signals. The scale of involvement must increase dramatically, he said, and it is equally important to educate the public about the urgency of the issue.

Kauffman of Good Energies, one of the largest independent investors in renewable energy, spoke in defense of solar energy and explained some of the latest technology developments in that field. Good Energies has invested $500 million in solar energy over the past year and now possesses the largest solar portfolio in the market, he said.

Malkin addressed how ATP Capital's investments in new gene technologies would result in more productive and faster-growing crops and trees, which would lead to a "new era in forest sustainability and productivity" and improve carbon sequestration potential. He went on to describe the two projects on successful agriculture genetics, which he views as only the beginning of agriculture's contribution to the energy solution.

Urban explained how CellFor, the world's leading independent supplier of high-technology seeds to the global forest industry, uses genetic technology to provide higher yields in corn, improving productivity. At the core of the business, he explained, is the transformation of gene types for crop development that provide superior products with tangible value that is attractive to investors. This attraction has been validated by the millions of improved seedlings that have already been planted.

Introducing innovations in construction, Richard Pietrafesa described the creation of Destiny USA, a multibillion-dollar theme park and resort destination under construction on a 150-acre reclaimed brownfield in Syracuse, N.Y., which "traditional" developers would shy away from, given the higher costs of improving the land quality. Where others saw increased costs, business should see a unique market opportunity, he said. Destiny USA is being built and operated completely free of fossil fuels through the use of biodiesel. He pointed out how business can take a liability, such as a nearby sewage plant, and turn it into an asset by converting the outgoing waste into energy.

Safeway grocery stores have also taken drastic steps toward going green, said Joseph Pettus, who added that his company has signed a contract with Chicago Climate Exchange with the goal of decreasing carbon emissions completely. Safeway has already decreased 1.5 percent of its carbon emissions per year. The store used biodiesel for all its fuel purposes, and all of the electricity is converted via gasoline. Safeway has clearly set goals to take initiatives to promote better livelihood and has created not just brand, but an example for the complete industry to follow. "All this stuff is easy," he said. "Taking initiative and having the determination to execute it will show the rewarding results. And each of these results make companies proud ... because they are developing a greater future for the rest of the world."

Moderator:
Catherine McCoy, Vice President, Global Environmental Finance, Stark Investments

More than 1 billion people are in need of safe drinking water. With that sobering fact in mind, moderator Catherine McCoy of Stark Investments led a panel of experts through a fascinating analysis of global water issues, noting that more than one third of the world's population will lack access to clean water by 2025. Jeff Seabright of The Coca-Cola Company described water scarcity as a "strategic risk" that must be addressed beyond the company's facilities, including watershed management and work in surrounding communities.

Booky Oren of the Arison Water Initiative pointed out the "urbanization challenge," suggesting that in times when more people live in urban areas than in rural areas, water scarcity is not confined to the developing world, but is a worldwide problem that cannot be solved by infrastructure alone. Increasing system efficiency and figuring out the "water supply puzzle" creates clear opportunities in the near future.

Andrew Benedek of Zenon Environmental compared innovative membrane water-filtration technology to chip innovation; he believes that it has the potential to solve water quantity and quality issues on small and large scales. Applying the right technology can alleviate the water crisis. "If a country is well managed, technology is here to solve water problems," he stated. "It is all about governance and management now."

Earl Jones of GE Water and Process Technologies connected water issues to technology, service, scale and globalization. He divided the water problem into the following pieces: supply strategy, demand management, energy nexus, public policy and "eco-system collaboration." Arguing for the need to take pro-active measures, he stated that "hope is not a method we can adopt" in relation to water.

Éric Lesueur of Veolia Water suggested viewing water as a public good. "At the end of the day, the mission is to provide water service to the people and achieve efficiency in managing the water cycle." He also recognized that water is a very different commodity than oil. Whatever we do, the amount of water on earth stays the same; what changes is the state and quality of the water.

The panel then addressed the pivotal question of how to bring clean water to the world's poor. Seabright suggested partnering with NGOs to work on scaling and replicating projects. Benedek stated that the membrane technology can be adopted at the household level and has the potential to be affordable for poor communities. Oren implied the need to view water as an economic problem, not a natural resource problem; he felt it must be addressed with a holistic approach.

The panel agreed that it is critical to understand the energy-water nexus. Food issues must be considered as well, especially where there are competing claims on crops for energy vs. food applications. The concepts of "waste to value" and "waste to energy" were discussed as an important part of the equation. It was pointed out that having a large supply of water is not enough; quality and accessibility are critical components. From an investment point of view, Jones suggested that we must find the right value proposition of water in order to promote sustainable development. Water reuse was brought up as an example of "water production." Wastewater treatment and reuse is especially applicable for agriculture and industrial applications, and the sociological barrier of using treated wastewater for drinking must be alleviated as well.

The panel concluded by suggesting approaches for solving the global water crisis. Oren brought up the need for sharing information on best practices and mistakes to avoid. Seabright added that investing in water efficiency is critical in order to be able to "produce more with less." The panel agreed that the issue of water pricing is a high priority, and the notion of "free water" can't continue. Water subsidies provide disincentives for investments and work against the market's pricing mechanism. When asked about water as a commodity, Lesueur described water as a very local matter.

With the example of water rights and transfers, the panel concluded that there is no simple answer. What works in one region might not work in another, especially if the consequences of water-rights trading are not well understood. Finally, innovations in distribution infrastructure and technology breakthroughs in treatment and desalination processes were brought up as future opportunities that hold promise.

Speaker:
T. Boone Pickens, Entrepreneur and Philanthropist; Founder, BP Capital

Interviewer:
Brian Sullivan, Anchor, Fox Business Network

It can't be easy to interview T. Boone Pickens. A self-made billionaire (though he admits he didn't make his first billion till he was 70 years old), Pickens is sharp, charming and has heard it all before. But the interviewer, Brian Sullivan, an anchor for Fox Business News, did an excellent job of navigating Pickens's territory.

Initially, the conversation revolved around the price of oil. At last year's Milken Conference, when Sullivan interviewed Pickens for the first time, oil was $67 a barrel. The price has almost doubled in the past year and there is no upper bound. In blunt figures, Pickens explained the price surge and provided some staggering statistics.

The United States represents 5 percent of the world's population but consumes 25 percent of the world's energy. And 77 percent of the oil Americans consume is imported, at a cost of $600 billion per year.

There is a fixed supply of oil in the world, set at approximately 85 million barrels per day. (The supply is set because OPEC is currently producing at maximum capacity.) In April 2007, supply and demand were in equilibrium at 85 million barrels per day. But demand has increased and today rests at approximately 87 million barrels per day. This 2 million-barrel difference was enough to send prices soaring.

Pickens was full of humor, though his tone became sharp when the conversation turned to America's dependence on foreign oil. He divided the oil-producing nations into three categories: Canada is a friend to the United States, Mexico and Kuwait are neutral and the rest are "not our friends." Thus, in Pickens's words, "we are paying for a war against ourselves."

Pickens repeatedly urged the audience to hold the next president's feet to the fire for our energy dependence, and he encouraged investment in alternative energy sources. He believes that our domestic supplies of coal and natural gas will pave the way towards energy independence. Pickens himself has invested in solar power projects and has completely financed construction of the biggest wind farm in the world, located in Texas. (On another interesting note, he also mentioned that he has been purchasing groundwater.)

Nuclear power is another source we cannot afford to ignore, according to Pickens. France, he said, relies on nuclear to meet more than 80 percent of its energy needs. "Can you believe the French beat us?" he asked. Even ethanol, though not practical as a stand-alone alternative, should be explored. "It's an ugly baby, but it's ours."

Sullivan's banter with Pickens kept the mood upbeat. But there was no mistaking Pickens's worry. "We are in a bad spot when we have $600 billion going to the enemy," he declared. Even Sullivan didn't have a witty retort for that.

Moderator:
Marc Gunther, Senior Writer, Fortune

If Frito-Lay and Wal-Mart have found ways to make it profitable, then it's probably a good idea. Sustainable business practices are not just about saving the planet; firms from every sector of the economy are now interested in sustainability. Green practices can save money and make money — that was the conclusive of a very interactive and congenial panel discussion frequently punctuated by laughter from both the audience and the panelists.

Moderator Marc Gunther of Fortune asked the panelists just how sustainable the U.S. economy is. None of them rated it very highly, but they were more optimistic when prompted about the potential for progress. As David Haft of Frito-Lay put it, the current macroeconomic forces in our country will bring about change. With diesel costing $5 a gallon, businesses will have to adapt or fail. Regardless of how it comes about, the end result will still be a more sustainable economy. Large firms have a lot to lose if they do not adapt, and numerous smaller firms are poised to seize the opportunity to benefit from those who fail.

Haft commented that Frito-Lay wants to be recognized as a leader in sustainable business practices. The company set very specific and demanding goals in 2000: reduce water use by 50 percent; reduce natural gas use by 30 percent; and reduce electrical use by 25 percent. Not only have they almost exceeded these goals, but now they intend to get all 35 plants of their U.S. plants off the grid by using net-zero technologies. A net-zero plant would be completely self-contained by recycling water, collecting solar energy and using waste to create bio-mass energy. All of these goals are based on production efficiency, but as Gunther noted, "Polar bears don't care about efficiency. They care about reductions in absolute levels."

Eli Halliwell of Jurlique expanded on this point, noting that his firm produces beauty products designed to incorporate "low-tech" sustainability. He has tapped into the idea that "healthy is beautiful." Halliwell uses natural products as a strategy to compete with other major firms in his industry, in what he calls a war of "bio versus chemo." The essentially unregulated beauty product industry relies on chemicals, but Halliwell points out that many of these chemicals are harmful.

Deborah La Franchi of Strategic Development Solutions invests in green development, using a screen she calls the "triple bottom line." An investment must produce financial returns, have a positive social impact and be environmentally sustainable. Contrary to conventional wisdom, there are plenty of opportunities to simultaneously accomplish all three things. She talked about how green buildings are not only less wasteful but actually cheaper to operate than traditional structures. When Gunther asked if the market was willing to pay more up front for green buildings, she responded by saying that they often cost the same or less than other developments. The notion that green structures cost more to build was based on early attempts to adopt new technology, when developers were using unfamiliar materials and practices. Now that builders have learned how to do it, there are no higher costs associated with green buildings.

Rand Waddoups of Wal-Mart acknowledged frankly that Wal-Mart is far from being a sustainable firm, but he expressed excitement about the opportunities for improvement. For example, he shared that Wal-Mart had changed its line item for waste management from a cost into a credit in less than two years simply by recycling. Wal-Mart now produces its own plastic goods, like clothes hangars, by recycling plastic that it used to have to pay to dispose of. In another example, Wal-Mart now shreds its used tires and sells them as mulch — at a profit. Disposing of the tires had previously generated a waste-management cost to the firm. Now customers pay to buy Wal-Mart's trash when they see the "green" labels. There is also a perception of quality attached to green products, he noted, and many consumers are willing to pay more for them. Wal-Mart is attempting to make environmentalism more accessible to its customers, in what Waddoups characterized as the "democratization of sustainability."

Kevin Wall of Live Earth was inspired by Al Gore's An Inconvenient Truth to pull out all the stops to raise awareness of climate change. Last summer his organization brought together 150 musicians on every continent for 24 solid hours of edutainment, meant to evangelize environmentalism. Sixty short educational films and celebrity public service announcements incorporated into the event. Wall noted that several environmental organizations associated with the event criticized its large carbon footprint, but he responded by saying that right now we need to promote awareness and create a rallying cry for change. Wall underwrote Live Earth himself, based on his experience working with Bono for Live AID in 1985. He is currently planning Live Earth Campus for fall 2008.

Moderator:
David Abel, Chairman and Managing Director, VerdeXchange Institute

Coordination and cooperation across borders was the big theme of today's discussion on the future of the Canadian energy industry. Moderator David Abel of VerdeXchange Institute immediately focused the discussion on the relevance of borders for the panelists, all of whom are in the vanguard of Canadian energy.

The general consensus was that these industry leaders would prefer for national and regional policy differences to figure very little into their business practices, though some acknowledged that differences in policy can have important effects on Canadian energy prospects, especially within North America. Bruce Aitken of Methanex Corp explained one way in which his company attempts to transcend borders. "We never talk about 'exports' in our business," he said. "We think about a global supply chain."

The reality, as pointed out by Michael Horgan of Environment Canada, is that there are important differences in policy between the United States and Canada, and also within Canada itself. Most notably, Canada is a signatory to Kyoto while the United States is not, so Canada has begun taking steps to limit its carbon emissions, imposing costs on its producers, while there is no comparable framework in the United States.

Thomas d'Aquino of the Canadian Council of Chief Executives put things more starkly, referring to the situation across and within North American nations: "Today what we have is a patchwork quilt," a situation that he called anathema to business. Leaders of the North American countries recognize the problematic nature of this situation, and the issues of borders, regulatory cooperation and energy and environment were the major themes of the recent meeting of the North American Competiveness Council, of which d'Aquino is a member.

Alisdair McLean of Plasco Energy Group did note that national level energy and climate policy is somewhat less relevant for his company's particular business of clean waste-to-energy, though Plasco's innovative process does face important hurdles in receiving appropriate classification at local levels, often getting lumped into outdated and dirtier classifications such as incineration. As he put it, "No one disputes the environmental benefits of what we're doing, but they're trying to find the right page in the rulebook to allow us to proceed." His business is particularly aggressive in attempting to make its success independent of larger policies, following a "win first in California" strategy, under the belief that success in California's stringently regulated market will mean they can succeed in most other places. Indeed, Plasco's business model can only be improved by a price on carbon dioxide, since their technology actually is a net reducer of GHG emissions.

The importance of cooperating to develop and deploy new technology was another theme the panelists generally agreed upon. Noting that Canada's prime minister has referred to the nation as an "energy superpower," d'Aquino also pointed out that much of these energy sources are very carbon intensive, and thus technology like carbon capture and storage will be very important in a climate-constrained world. But such technology will not only be beneficial to Canadian industry — it will also benefit the United States and the entire world by allowing rapidly developing countries such as China the opportunity to utilize their vast fossil resources (which they would likely do anyway) while minimizing their contribution to global climate change.

Tying together climate and energy issues and emphasizing their interdependence, Aitken offered some good advice for policy-makers to take home: "I don't think countries can develop climate policies without having energy policies."

Moderator:
Jeffrey Lipton, Managing Director and Head of CleanTech Practice, Jefferies & Company

The world is crying out for solutions that will bring us clean air and secure energy supplies. The financial markets can play a part in accelerating the transition, but investment still lags in the technologies we need. Guided by moderator Jeffrey Lipton of Jefferies & Company, this panel attempted to answer ambitious questions of how markets can serve the needs of the planet and where we will find the capital.

The broad definition of clean technology refers to a vast set of technologies in the sectors of bio-fuels, renewable energy, energy storage, and water and air quality. Daniel Weiss of the Angeleno Group suggested that "the numbers say it all," with $200-$300 million invested in clean energy seven or eight years ago vs. $3 billion dollars invested in 2007.

This growing sector is of special interest to policy makers, investors and companies -— but could the hot pursuit of solutions lead to a bubble? Margot Wirth of CalSTRS observed that we may be seeing a bubble on a sub-sector level, especially with ethanol. Jonathan Bloch of GKM Ventures argued that the clean tech sector is moving in the right direction but cautioned that peaks and valleys are still to come.

How is the current credit crunch affecting the clean-tech sector? Joanne Yoo of NY State Common Retirement Fund stated that no sector is completely immune from the crisis, and that this could affect important issues of exit opportunities. But she also noted the opportunity to recruit high-profile executives in such times. Wirth agreed with Yoo, but felt that this sector is less affected by the current crisis than most. Frances Arnold of Cal Tech observed that she sees enough capital available to start with, but she questioned who will take the risk and invest in taking things to a truly large scale when the time comes.

The panelists turned their attention to the role of major players such as GE and Honeywell, which are strategically investing in clean technologies. Weiss believes the decision is made on a case-by-case basis. "Strategic partners are looking for value," he said; if there are profitable opportunities, they will consider investing. It is critical for the clean-tech sector to have large, established corporations willing to commit capital. Bloch added that collaborating with the major players and understanding how the market operates is vital to ensure successful exits in the future. Yoo warned that strategic partners sometimes don't share their entire plan, and "strategic priorities sometimes turn out to be strategic public relations."

The involvement of strategic partners is related to the fact the sector requires massive capital investment to achieve large-scale implementation. Bloch offered a point of comparison: software companies need $40 to $50 million these days in order to sustain their future and become profitable, while clean-tech companies need $75 to $100 million just for proof of concept. He added that only solid returns will generate interest with investors. Yoo agreed, emphasizing that "this is not a social exercise" and these firms are subject to the same investment criteria as any other sector.

The panelists predicted that we will see strong growth not only in alternative energy but also in water, green materials, agriculture, health care, remediation, solid waste, carbon sequestration, transmission and distribution infrastructure, batteries, lighting, bio-fuels and other alternative liquid fuels. Public policy can help foster opportunities. For example, the spread of renewable portfolios at the state level is a powerful tool.

Another key factor will be the future price of carbon. According to Yoo, making carbon a financial issue is critical when looking from cost perspective. It is currently not incorporated into baseline calculations and will not be among the considered factors until legislation is in place, according to Weiss. Companies cannot count on profits from carbon reduction at this point.

The panel agreed that the clean-tech sector must be global in nature, especially when competing against more traditional investments. The track record of a management team, the regulatory environment, the path to commercialization and scalability are all important issue to combine with proven technology.

In conclusion, the panelists were asked for their personal outlooks on the near-term future of clean tech. Bloch emphasized his belief that all of the components for long-term success are at hand; he hopes to see growth without the sector becoming overheated. But speaking for everyone, Yoo expressed her hopes that we will see science move from the lab to the market quickly to serve our future needs.

Moderator:
Peter Passell, Editor, The Milken Institute Review

The panel of experts on climate change policy held a wide-ranging discussion, delving at times into wonkish details of economic theory, but continually returning to ground themselves in political realities. They touched on such topics as the relative superiority of a carbon tax versus a cap-and-trade system, the proper allocation of emissions permits, the role of safety valves in climate policy and, finally, the moral hazards associated with geo-engineering. In doing so, the panelists highlighted both theoretically optimal policy actions, as well as the concrete details of the policy process that could potentially limit implementation of those actions.

Robert Hahn of the American Enterprise Institute led the pack in grounding the discussion in politics. Recalling an anecdote from working on the Clean Energy Act decades ago, he noted that while he and other analysts were sweating the details of the program design, a senator told them, "Listen, you guys, don't worry about it. Whatever you send up is going to be dead on arrival," presumably being entirely marked up with political compromises. The lesson being that as we discuss proper policy responses to the climate problem, politics "is something we′re going to need to factor into the equation, as well."

This idea can frame many of the other issues discussed. On the issue of auctioning permits for a cap-and-trade system, Joseph Aldy of Resources for the Future pointed out that clearly the theoretically optimal thing to do is auction off all permits and use those funds to reduce taxes in other areas, thus doubly stimulating innovation toward low-carbon technologies. Of course, "how you cut up the pie is critically important," he added. Hahn again emphasized the distinction: "Don't assume this money is going to be spent the way economists want it to be spent."

When the discussion came to the issue of whether cap-and-trade systems should have safety valves or other mechanisms to prevent the price of credits reaching too high a value, Steve Kline of PG&E expressed similar concerns about prescribing a fixed safety valve policy, noting that "we have a fundamental concern about well-intentioned systems that sometimes go haywire."

The panelists also touched on international issues, with Nathaniel Keohane of the Environmental Defense Fund providing a nice segue linking the intra-national equity issues between U.S. states to national equity issues in climate policy. Specifically, a climate policy must address how to treat states or countries that have already taken many steps to reduce their emissions. States like California already have very energy-lean economies, while Japan is in a similar position at an international level. Should states in this position be forced to achieve further reductions, in effect discounting what some would argue has been climate leadership? What is the proper baseline against which they should be measured?

Whatever the answer, these equity concerns may be overshadowed by the issue of who will bear the burden of impacts and adaptation to climate change. As Aldy discussed, developing countries lack the capacity to adapt, and more of their economies are exposed to climate change impacts. On the other hand, Keohane emphasized that when it comes to the large rapidly industrializing economies like China and India, we will need them to take action to mitigate, rather than just adapt, but "we're gonna have to show we're serious first."

Moderator:
Janet Lamkin, California State President, Bank of America Corporation

Janet Lamkin of Bank of America introduced a distinguished panel of Californians to discuss the state's past efforts and future opportunities in clean technology and energy innovation. Former governors Jerry Brown and Gray Davis joined Schwarzenegger administration environmental adviser David Crane and Nancy McFadden of PG&E in a lively discussion about the challenges of policy-making in this area.

Both governors began the session by describing California's unique position in the country, and in the world, as a leader on climate change and environmental policy. Attorney General Brown cited California's history of entrepreneurialism and activism as key assets to facilitate progress in green technology, noting that 60 percent of green-tech venture capital goes to businesses in the state.

Davis agreed that California has a "record of innovation and conservation unmatched around the world." He added that California had also adopted a more realistic approach to power pricing, which has been important supporting commercially viable endeavors in this space. McFadden echoed this point by noting that the state has a decoupled system, under which megawatts get more expensive for customers as they increase consumption. Under systems in many other states, additional units of power are actually cheaper — a pricing structure that provides no incentives for efficiency. Policies like decoupling, she said, have helped California's aggregate energy use remain flat while its economy has grown, indicating increasing energy efficiency.

Crane shifted the discussion to the broader goals of climate change. Noting that California is responsible for 1 percent of global greenhouse gas emissions, he said that "we have to change the nature of the fuels we burn." He added that California's sheer size puts it in a unique position to influence the composition of energy produced in the country. He said that our "most powerful weapon is our demand. If [power companies] are going to be in business, [they] have to sell to California," and the state's environmental standards can therefore influence how power is produced.

Panelists, however, were realistic about the political challenges involved in taking action on climate change. Davis stated simply that implementing AB-32, a recent California climate change law, now would increase prices for energy consumers. Along those lines, McFadden added that while many customers want to take action on climate change, she estimates that at most 5 percent of PG&E customers would actually be willing to pay for an energy plan that complies with AB-32. Implementing this legislation would therefore require "a leap of faith," according to Davis.

Brown was blunt as he described a variety of procedural measures taken by legislators at the state level, as well as local governments, that might stall implementation of AB-32, which is set for 2012. "The rubber hits the road in 2012," he said. "And I want to be as far away from it as I can be." He went on to assert that the lack of discipline on the part of consumers, which led to the current mortgage-related credit crisis, might also limit American willingness to make real progress on climate change. This attitude poses a real challenge for politicians, who, as Davis mentioned, don't win by telling their voters that their standard of living will decline.

The panel wrapped up with each panelist highlighting the importance of California's research infrastructure. The research universities inside and outside of the UC system and the national laboratories in the state are a "real competitive advantage" and all agreed that keeping them funded should be a top priority for the state government.

Moderator:
Nathalie Hoffman, Managing Member and CEO, California Renewable Energies LLC

The emergence of biofuel technologies began before World War II, as energy independence was becoming increasingly important in the days before cheap and plentiful crude. Until market forces dictated a reliance on crude oil supplies, biofuels were being incorporated into emerging sector markets. Henry Ford's 1908 Model T was the original flex-fuel car, running on both ethanol and gasoline.

The audience was treated to a quick overview of biofuels by one of the eminent scholars in biofuel technology, Frances Arnold of the California Institute of Technology. Employing a renewable resource (such as biomass, natural oil, sugar/starch, algae or waste) as a base, many different types of fuels can be produced, ethanol among them.

Hunt Ramsbottom of Rentech Inc. said that his firm is involved in the development of crude oil alternatives as substitutes for diesel and jet fuel. Through a process of converting waste, biomass, pet coke and coal, Rentech is working with the airline industry and the military. The price of fuel needs to flat-line in order for airlines to remain in operation, he explained. "If the price of crude continues to increase, our airlines are in serious jeopardy."

The limited use of biomass input in the Rentech production process is an example of the competing objectives within the biofuel industry, noted Arnold. Different concerns for energy security and ecological stability drive competing innovations within the private sector. He believes that we need to invest in technology that "resolves the bridges," meaning a technology that addresses both concerns. Ramsbottom agreed but added that "if we truly want to replace crude, we need everything that everyone is working on."

The yield of fuel from biomass is key, explained Arnold. The private sector is driving the innovations that will sustain our global economy, and maximum yield is essential for profit maximization.

Jim McDermott of US Renewable Energy said his company is making use of the 350 million tons of waste that the United States produces every year. "We are the Saudi Arabia of waste," he added, and using a product that others will pay you to take away provides a negative cost incentive that is very appealing to industry leaders. "Waste must be converted," he stressed. "We're running out of room."

Turning the discussion back to the technology commercially available today, moderator Nathalie Hoffman of California Renewable Energies questioned the panelists about the relative merits of corn and sugar cane ethanol production. McDermott stated the fundamental difference in business models: The short shelf life of sugar cane has profound implications in the production and distribution process. Without the ability to store the product, as can be done with corn, the farmers and the mill producers agree to output and costs before the crop is harvested, essentially creating a floating market that is much less susceptible to monopolistic behavior.

Whether it comes from corn or sugar cane, all of the panelists agreed that ethanol has its limitations and the low energy density and corrosive properties of the fuel make it less than desirable. Entrepreneurs are working to find better cost-effective and logistically feasible alternative fuel sources. Whether it derives from waste, algae, grains or something yet to be discovered, the race is on.