Energy innovation: the view from the corner office

NATIONAL HARBOR, Md. -- Two corporate titans, two different views on energy.

That's what attendees of the 2012 ARPA-E Energy Innovation Summit observed as former Wal-Mart chief executive Lee Scott and FedEx CEO Fred Smith sat down with Center for American Progress chair John Podesta to discuss energy progress and how it pertains to the large American corporation.

Below, a tour through their wide-ranging conversation:

ON RETAIL'S ROLE IN MAKING CHANGE

"We were all making a fortune on CFLs," Scott said of Wal-Mart and other retailers' sales of compact fluorescent light bulbs. Manufacturer General Electric had a "huge margin," and so did Wal-Mart -- but the companies agreed to reduce their standard margins and promote them in end-caps in an effort to sell even more -- but also promote more efficient products, he said.

"They exceeded our expectations," Scott said. "As we get affordable products at the store that are great for the environment, they [reverberate with customers]."

It is sometimes the business community's responsibility to make better products more affordable, Scott said. For example, customers always pick the bigger bottle of Tide laundry detergent -- even though the smaller, concentrated version is more efficient for everyone. That's why Wal-Mart promoted the concentrated version -- it knew it just had to push the consumer in a new direction.

"We told the story," Scott said. "We played favorites with the person who made the improvement."

ON INEVITABILITY

Smith was optimistic that expensive but more efficient vehicles, from electric cars to cleaner-burning planes, would soon overtake FedEx's fleet.

"In about five years or so, you'll have a vehicle [that] has a positive R.O.I. to convert an internal combustion engine to light-duty electric," thanks to ongoing advancements in battery energy density, he said. "In a reasonable amount of time, [electric cars] will be cost-competitive to combustion engines."

He added: "There's less maintenance, less complexity and so forth. The power infrastructure is there. We all have 220 [volts] in our houses, apartments."

Meanwhile, the aviation industry has demonstrated its commitment to reducing emissions -- by increasing efficiency, fuel savings pile up.

"There's no question that you can produce highly efficient [biofuels]," Smith said. "In fact, it's more efficient [than traditional fuel]. It's simply a matter of scalability and cost. We believe the most likely source of a scalable biofuel for aviation is either micro- or macro-algea -- seaweed and pond scum."

ON THE GOVERNMENT'S ROLE

Podesta asked both men how much they thought the federal government should be involved in achieving change.

Scott was cautious, suggesting that he believed the government would too easily overreach and impede progress.

"You have to be careful…in how far government does go," he said. "Wal-Mart is very much a, 'Let us resolve issues based on what is good for our customer and don't get government ahead of where we can go' [company]."

Smith was more optimistic, outlining three proactive ways the government could foster energy efficiency growth.

He suggested:

• Investment incentives. "We accelerated our adoption of these new fuel efficient vehicles because of the expensing provisions that were put into the tax act by the Obama administration," he said of FedEx. That allowed the company to increase its capital expenditures budget by "hundreds of millions of dollars" and allowing it to purchase several new efficient aircraft.
• Electrification and natural gas incentives. "[They] provide the catalyst for people to cross the chasm," allowing for competition in modes of propulsion and lower overall costs.
• Leadership. "It's hard to find a more effective thing that the United States government has done than ARPA-E," he said.

Consider federal taxes, Smith said. Done right, they can accelerate the transition.

"I would just lower the rate and get rid of all the incentives at the corporate level," he said. "But I think the incentives for adoption -- electrification, natural gas -- are a very cost-effective mechanism to deal with this problem relative to the military expenditures we make."

ON GLOBAL PARTICIPATION

Podesta asked if there were any winners and losers in the race to the next energy era, but both executives said they found little resistance in their company's activities across the globe.

Scott said Wal-Mart received alternative energy support in the United Kingdom, sustainable farming support in Costa Rica and production standards help in China.

"Most all of the countries we're involved in are very supportive in doing these kinds of things. We're finding suppliers," big and small, "that want to step up to the plate" in terms of sourcing quality and process and human conditions, he said.

"Across the board, we're not finding any country that's just closing their eyes to it."

Smith concurred.

"Almost every government that I know of around the world -- China, Brazil, EU -- is very committed to sustainability," he said. "Increasingly, it's the understanding that the demand by the emerging economies for oil resources are creating a lot of global problems." Increasingly, there is a sort of "symbiosis" between the public sector, private sector and U.S. government, he said.

ON POTENTIAL HURDLES

Scott said he was slightly wary of electric cars in particular, only because they could hurt U.S. energy independence in their current form.

"You really don't want to have rare earth minerals in those batteries -- particularly those things that you can't source inside your own country," he said. "You don't want to shift to mineral from oil."

CAN THE U.S. BE A LEADER IN CLEAN TECHNOLOGY?

Smith said yes. America's biggest factories -- and employers -- are focused on transportation and power plants, and the potential to transition that workforce to forward-looking technologies is tremendous.

If you transition on a seven- to 10-year lifecycle, "that's a huge opportunity," he said.

Scott was less confident.

"You have to decide what you want to do," he said. For example, it's unlikely you're going to bring back men's underwear manufacturing from Honduras. "What do you do as a company and a country that creates an environment that has an appropriate amount of regulation that makes businesses want to be here?"

Do you punish, or protect? Scott didn't have any easy answers -- and he didn't think anyone else did, either.

"How do you create an environment that holds people accountable in a way that makes them want to [participate]? What do we do to make manufacturing want to come back to this country?

"I don't think government has an answer for that."

This post was originally published on Smartplanet.com