Steve Westly: Global Shift to Cleantech Has Already Happened

Steve Westly

No one’s belief in the power of sustainable technology is more contagious or convincing than that of Steve Westly, former California State Controller and keen-eyed founder of the major cleantech sustainability venture firm The Westly Group. A year into the Trump administration, Westly addressed the VerdeXchange 2018 Conference to illustrate how the new resource & IOT economy is evolving from an oil and auto industry economy to irreversible heights around the globe, with California playing a crucial leadership role.  Among Westly’s reasons why California continues to lead: early vehicle standards that cleaned the air, talented immigrant innovators starting California companies, and forward-looking regulators that are sending signals to a global marketplace. Check out Steve's full remarks here.

Steve Westly:  I grew up in Los Angeles. Back then in the ’60s, every time you went to the beach, Mom would have to bring along kerosene or turpentine to get the tar off the kids’ bodies.

And why not? At the time, nine of the 10 largest companies in the world, market cap-wise, were six oil companies and three auto companies, with US Steel or GE bringing up the rear. It was an oil-based economy. The oil and auto industry controlled the economy, and frankly, controlled government as well. That is all changing.

After 40 years of extraordinary economic growth, with China and now India following the excesses of America, we have a planet choking on pollution. The Harvard Health Project projects that over the next 25 years, 83 million people in China will die of lung disease. And India is in the process of passing China as the largest polluter in the world. 

The Chinese, to their credit, have begun a massive campaign to move to solar and wind. China is by far the largest solar power in the world, while India is becoming the greatest challenge.  But there’s good news on the horizon. California started the parade 40 years ago in the 1970s. What did we do that began to make our economy cleaner, after it was getting dirtier for decades in a row? It was catalytic converters. California unilaterally required the auto industry, if they wanted to sell cars in our state, to make them cleaner. Detroit said, “What are you, crazy? We can’t make cars for different states.” But we forced their hand. And within a decade, every state in the country and every country in the world had followed California’s model.

Most people think there’s a great battle going on among us between the carbon fuel industry and the renewables industry. I’m here to tell you that fight has already been waged, and it’s over. Renewable energy has already won. There is a global move in that direction. The real question is what is happening next.

Carbon fuels are globally going down. Renewables are coming online faster than anybody anticipated. Because the cost of renewable energy is going down so quickly, it does not matter whether you’re Republican or Democrat, or you somehow think coal is coming back: The whole world knows—except for 1600 Pennsylvania Avenue—that we’re going in this direction. It’s happening inexorably, and it’s driven by the global economy.

The cost of solar and wind is going down precipitously. Renewables are now below the cost of carbon fuels in every state in the country. But the missing link is power storage, full stop.

Most people in business know the cost of a barrel of oil. It’s just something you need to know in the global economy. In the future, you will need to know the cost of a kilowatt-hour of lithium-ion batteries. They are becoming ubiquitous.

For most of my life, they’ve been about $2,000 a kilowatt. In the early 2000s, the price dropped by 50 percent to $1,000 a kilowatt. I was serving on the board of Tesla at the time, and this was dramatic: It meant that for the first time, you could produce a very expensive, very cool electric car for rich people. Two years ago, the price dropped to well below $100 a kilowatt-hour—down from $1,000 just eight ears ago. There is no way internal combustion can keep up. We are heading toward a world where people will no longer pay a penny for electricity or gasoline. This is a big shift.

As this happens, you will see an inexorable move to electric vehicles and power storage in every home. Vehicles will become battery with wheels; they will transfer power both ways. You will have a chance to make money by selling electricity back to the utility to help them arbitrage. This is a whole new world, and it’s coming faster than you know.

Norway has stood up and said, “By 2025, ban on oil and diesel vehicles.” This is coming off a world where just a bit ago the nine biggest companies in the world were oil and car companies.

But there aren’t many Norwegians—about 4.5 million. India, though, has 1.2 billion people choking in the worst pollution on the planet. And they’ve stood up and said, “We’re going all electric.” It will be prohibited to sell diesel vehicles after 2030. England, France—the largest economies in the world are lining up. America? Missing in action. But California is leading. We have just put in action legislation for a ban on oil and diesel vehicle sales by 2040. This is a fundamental shift.

Four years ago, General Motors said, “We may see some hybrids in our future.” Eight weeks ago, Chair Mary Barra said, “General Motors’ future is all electric.” She also said that the business model at General Motors is changing. They won’t be selling cars to individuals in the future. In their vision, they will become the largest autonomous ride-hailing firm in the world. Can we deliver people for $1.50 for mile? That is the new coin of the realm.

Tesla has built a Gigafactory the size of 100 Costcos. It’s the largest building in North America. Volkswagen has said it will produce more batteries than Tesla times five. This is what’s driving global costs down and changing the economy as we know it. California stood up as a global leader and said that we will require that 50 percent of the power utilities produce in this state is renewable by 2030. Business and industry said, “We’ll never get there.” It now appears that the utilities in this state may be there as early as 2020. A goal once thought to be impossible is now here 10 years early, thanks to California’s leadership.

But that’s just part of the story. What’s next? We are now rapidly disintermediating every industry to create the new future. The energy industry, the auto industry, and the building industry are all being disintermediated as part of a global city movement. These industries didn’t used to care about each other. Now they’re becoming completely intertwined. One of the reasons they’re becoming intertwined is because they’re under attack—by Silicon Valley.

Apple, Google, Amazon: The world’s been turned upside down. Those oil and auto companies are all gone; there’s one left in the top 10, Exxon, and it’s sinking like a stone. Who’s displaced them? Of the 10 biggest market-cap companies in the world, five are tech companies. All five are on the West Coast. Nothing is left in New York, Philadelphia, Detroit, or Chicago. That’s the old world. Three are in Silicon Valley: Google, Facebook, and Apple. The other two are in Seattle. Amazon is rapidly heading for the No. 1 position in the world.

But they may be about to be overrun, because filling out the top 10 are three of the fastest growing companies in the world—all Chinese tech companies: Baidu, Alibaba, and Tencent. Technology is eating the world. This is the future and it is bringing renewable energy even faster. This is the new ethos: You must cannibalize your business before your competition does, or someone else will. 

Our whole new world going forward is going to be driven by new technologies like the Internet of Things. Every part of our lives—our homes, our cars, our work, ourselves—is going to be connected in new models like the sharing economy. There are new customers. For the first time in 50 years, Baby Boomers are no longer the largest buying cohort in the world. In 2017, millennials displaced them. That is a big deal, because their buying patterns are completely different. 

For my generation, it was all about who could buy the biggest car, the biggest TV, or the biggest house—and then throw it out and buy a bigger one in 18 months. That’s all gone. Millennials are looking for three things. 

One: They want to see a smaller carbon footprint in everything they do. Two: Complete connectivity in every part of life. And three: they want to see companies with a higher purpose. That’s bad news for Exxon and great news for Google, Apple, and other firms if they do the right thing. And part of that is: Be careful with your data and maintain our trust.

Renewables, storage, fuel cells—this is already old news. The new energy is complete home energy automation. With blockchain, we now have the ability to do per-to-peer energy trading. Utilities, if they are not careful, could be left out of this entire mix. Everybody will be encouraged to be part of this new economy. 

There is a revolution in buildings. Every building in every country on the planet is moving from a dumb building to a digitized smart building. It appears now that the intelligence for building is in lighting. 

Your lights won’t just be lights anymore; they will have sensors that help you save energy, provide full mesh networking, tell you how many people are in every room, measure the quality of your air. Lights will make our buildings and our cities smaller. 

If you look at the fastest growing companies in the world, you will see a disproportionate number in this resource efficiency mode. These aren’t just billion-dollar unicorns. These are firms worth in the tens of billions of dollars. The striking thing about this list: There’s not one company here over 14 years old. 

I want to make the case that the future is happening faster than we understand. General Motors’s EV1 was the first electric car that got any real attention. But it was a crappy product. It had a range of 70 miles—slowest thing on the road. I won’t even comment on the looks.  Fast-forward just 16 years, and Tesla rolls out this vehicle. It’s the safest car ever tested by NHTSA. It’s No. 1 in Consumer Reports. In a short period of time, electric cars went from irrelevant to being best sellers. Now, Tesla has the Model 3. The biggest selling car in America is usually a Toyota Corolla or a Honda Accord, with 270,000 units. The Model 3 has 500,000 orders before they’ve even put one in a storeroom—almost twice what has been sold by a car in US history. 

Starting this year, companies like Mercedes are putting out high-end autonomous vehicles. Ford has said they’ll put fully autonomous vehicles on the road in 2021. It’s happening right before our eyes. The inflection point is coming. We are in the middle of a global shift and change in the economy like no one has ever seen. And California is still the future. 

What makes us great? What makes us the world’s sixth largest economy? It’s four things. First: We have the world’s best universities—UCLA, USC, Caltech, Berkeley, Stanford, etc.

Second: We’ve got risk capital that will fund young people to take new ideas and turn them into reality.  

Third: We have an immigrant population here that is driving our economy further than anybody understands. 71  percent of all tech workers in Silicon Valley are immigrants. Over 50 percent of the CEOs taking companies public on NASDAQ today are immigrants. This is our secret sauce.

Fourth: California understands that we are remaking the future. That is our destiny. There has never been a better time to be an entrepreneur. We are charting a new destiny in this state, and we will continue to keep California at the forefront of creating a new resource economy for all Californians.

“We are heading toward a world where people will no longer pay a penny for electricity or gasoline.” - Steve Westly