Natural Capitalism:

The Next Industrial Revolution

Twenty-First Annual E. F. Schumacher Lectures
October 2001, Amherst, Massachusetts
Copyright © 2001, 2004 E. F. Schumacher Society (now the New Economy Coalition) and Amory Lovins

Introduction by David Ehrenfeld,
Biologist, Author, and Member of the Board,
E. F. Schumacher Society

Amory Lovins is the cofounder and chief executive officer of the Rocky Mountain Institute, which has been around since 1982—a fifty-person, independent, nonprofit, applied research center in Snowmass, Colorado. The Institute’s objective is to foster efficient and restorative use of natural and human capital to create a secure, prosperous, and life-sustaining world. Amory Lovins has also created a number of for-profit spin-offs, including Hypercar, Inc., which I’m sure he will talk to you about today. A consultant physicist, he was educated at Harvard and Oxford; he’s received an Oxford M.A., seven honorary doctorates, a MacArthur Fellowship, the Heinz, Lindbergh, World Technology, and Hero for the Planet Awards, the Happold Medal, the Nissan, Shingo, Mitchell, and Onassis Prizes, and—to me one of the most impressive of all—the Alternative Nobel Prize.

In addition to authoring or co-authoring twenty-seven books and hundreds of papers, Amory Lovins has briefed sixteen heads of state and has consulted for scores of industries and governments around the world. Alvin Weinberg, the former director of Oak Ridge National Laboratory in Tennessee, called him “surely the most articulate writer on energy in the whole world today,” and Newsweek described him as “one of the Western world’s most influential energy thinkers.”

That’s as much of a formal introduction as I want to give; you all know who he is. I did want to say this, though: I work at a large university, surrounded by experts but only a very few people of vision. Rarely are deep expertise and real vision combined in the same individual. I can recognize such a person because I live with one, and Amory Lovins is certainly an expert with vision. If he were U.S. Secretary of Energy, as he should be, I think this nation and the world would be a much more secure place than they are today. I’ve had this thought many times in the past two months since the attacks on the World Trade Center and the Pentagon. But the drama is far from over, and I’m confident that Amory’s vision will have a major role to play in safeguarding our future and the future of everyone on this planet.



Thank you for those kind words. It’s a special joy for me to be here for two reasons: one is that I went to high school here in Amherst, class of 1964, and some of my teachers are here. I see Bill Hutchinson, who tried to teach me biology—as a recovering physicist, I’m still trying to learn biology. Charlotte Halpin and Larry Krause are also here. Thank you, it was a wonderful education, and it’s just beginning.

The other reason it’s a joy to be here is that I knew Fritz Schumacher. He happened to have the ITDG (Intermediate Technology Development Group) office on Poland Street in Soho, right next door to the nascent British office of Friends of the Earth, which I was helping to start, and I would run into him occasionally. My latest book is dedicated to him, and I think he’d be pleased with it. It’s a technical book called Small Is Profitable: The Hidden Economic Benefits of Making Electrical Resources the Right Size.

I’m here to talk about work that Hunter Lovins and Paul Hawken and I have been doing, and still are, on the subject of natural capitalism. Perhaps I should start by explaining that rather odd phrase, which is the title of the book the three of us wrote.

Capitalism is supposed to be the productive use of and reinvestment in capital. But what is capital? There are several kinds, but industrial capitalism deals only with two: money and goods. There are at least two more, namely people and nature. Without people, there is no economy; without nature, there are no people--indeed there is no life--so leaving these two out is a very material omission.

The end of the twentieth century saw two great shifts in political economy. The one that historians noticed was the collapse of communism and the apparent victory of market economics or of capitalism (they’re not the same thing, and we’re not sure yet which one was the winner). Perhaps less noticed was the beginning of the end of the war against the earth and the rise of this different way of doing business that we call natural capitalism. Paul Hawken chose that phrase as the title partly to indicate that this kind of capitalism plays with a full deck, dealing with all four kinds of capital, particularly emphasizing natural capital. It turns out that you make more money with four kinds than with two. I think Paul also wished to indicate that industrial capitalism is a temporary aberration, is unnatural—not because it’s capitalist but because it defies its own logic by liquidating and not valuing its own largest source of capital, the natural world.

We are too well aware of the erosion of living systems. Everywhere in the world every major ecosystem is in decline. This matters to business. The importance of natural capital was re-emphasized almost a decade ago when a $200 million investment and a lot of good science went into Biosphere Two, a structure in the Arizona desert. Yet it failed to provide breathable air for eight people—one of the many nifty services that Biosphere One, outside those walls, provides free every day for six billion of us. All the bio-geo-chemical cycles of Biosphere One are vital to our existence. Scientists trying to figure out an economic value for these cycles typically come up with numbers at least as big as the Gross World Product. But whatever the right number is, we know it’s not zero, and as Peter Bradford reminds us, it’s better to be approximately right than precisely wrong.

No doubt one could spend decades, especially in the academy, debating what the right number is, and then more decades in Congress debating how best to signal that value in prices. I think it makes a lot more sense, especially given the present urgency, to figure out a way of doing business as if nature and people were properly valued, but without needing to know exactly what they’re worth or how that value would be signaled in the market. This is what natural capitalism does, and it is very profitable even today, when nature and people are valued at approximately zero.

Nature’s value comes less from resources than from ecosystem services, the dozens of services that we can’t live without and that are very mysterious, such as regulating the composition of the atmosphere and regulating the climate (until we started experimenting with it), cycling nutrients, and controlling pests and pathogens. We have no idea how to replicate these services, with very few exceptions. We do know, for example, how to pollinate plants—that’s good, because bees are dying around the world—but if you try hand-pollinating the world’s plants, you’ll find that it does become tedious. And then there’s the matter of assimilating and detoxifying society’s wastes, and so on. The trouble is that as these ecosystems go into decline, they fall behind on their delivery of the services we need to live. The human prospect is therefore becoming limited not by boats and nets, but by fish in the sea; not by plows but by fertile land; not by pumps but by fresh water; not by chainsaws but by forests.

The last time people in an industrialized country were seriously limited by a shortage of something was a quarter of a millennium ago at the dawn of the first Industrial Revolution. At that time, to oversimplify a bit, there weren’t enough people in England weaving cloth, for example, to make it affordable for most customers. Yet the notion of increasing labor productivity was unknown then. If anyone had gone into Parliament around 1750 and said, “Don’t worry, we’ll just make weavers a hundred times more productive,” nobody would have understood this idea, let alone thought it was possible. But that is exactly what happened as profit-maximizing capitalists teamed up with technological innovators, and soon a Lancashire spinner could produce the cloth that had previously required two hundred weavers. As that capability spread through one sector after another, creating a middle class and affordable mass goods and purchasing power and all the artifacts we see around us, we came to call it, rightly, the Industrial Revolution. Its logic was simple and correct, at a time when the relative scarcity of people was limiting progress in exploiting seemingly boundless nature, the obvious answer was to make people a hundred times more productive.

That logic of economizing on the scarcest resource remains perennially valid, but meanwhile the pattern of scarcity has quietly reversed. In the next Industrial Revolution, now underway, we’re dealing with abundant people and scarce nature. It is no longer people but nature we need to be using far more productively, wringing four or ten or a hundred times the work from each unit of energy, water, materials, topsoil, or whatever we’re borrowing from the planet.

That radical increase in resource productivity is the first of the four interlinked principles of natural capitalism. The second is the redesign of production along biological lines—with closed loops, no waste, and no toxicity—including the sort of industrial ecology concept that John Todd outlined in his lecture this morning. The third is the new business model that shifts commerce from intermittently making and selling things to providing a continuous flow of value and service in relationships that reward following the first two steps. Fourthly, you make a lot of money this way; so what do you do with the profit? Well, a capitalist is supposed to invest profit into productive capital, and the most productive kind of capital to reinvest in is typically the kind you’re shortest of—in this case, nature (and indeed human culture and community)—so that is something any prudent capitalist would know to do.

Let’s start with the first principle—radically increased resource productivity. You’d think that after centuries or millennia of wringing out waste, there wouldn’t be much left. But fortunately we have learned that waste is an expanding and almost infinite source. In this country the amount of material we dig up and move around and process and use and throw away amounts to about twenty times one’s body weight per person per day, and that includes only water that’s returned contaminated, not water that’s returned clean. Worldwide, this flow, which is doing such harm to nature, is close to a half trillion tons per year—and yet only 1% of it is going into durable products; the other 99% is waste.

We’ve already cut out $300 billion a year’s worth of energy waste in the United States, but we’re still wasting $300 billion a year’s worth. The efficiency of converting fuel at the power plant into light in this room is about 3%; our cars use 1% of their fuel energy to move the driver; our power plants throw away as waste heat the same amount of energy that Japan uses for everything, and even their economy is not yet one-tenth as energy-efficient as the laws of physics permit. Fortunately, we now have very powerful techniques that can triple or quadruple the energy and water efficiency of existing buildings, while in new buildings the energy usage can be reduced by 90%, and the building then not only works better, it costs less to build.

We’ve already done quite a lot to reduce energy waste, but there is much more that can be done. For example, in 1976 I published an article in Foreign Affairs called “Energy Strategy: The Road Not Taken?”—so named thanks partly to my Amherst exposure to Robert Frost (whose horses, by the way, were tended years earlier in Vermont by the mother of my later wife and cofounder of Rocky Mountain Institute, Hunter Lovins). In that article I contrasted with the official forecast, heading toward the northeast corner, the notion that U.S. energy use might actually stabilize and decline over the next half-century as we used less energy and enjoyed it more by wringing out a lot of the waste in converting, distributing, and using it. We would get the same or better services with less money, more brains, and smarter technology. That heretical prediction is what has actually happened so far. We’re not doing badly, and we now know how to do a great deal better than that original target and do it much more profitably.

Now let me give you a few examples of where the state of the art is. In fact, I’ll take you back a bit, to 1983 technology. I live in a passive-solar banana farm, 7100 feet up in the Rockies. There are basically two seasons: winter and July. The temperature there can on occasion go down to –47°F. You can get frost any day of the year, and we’ve had as long as 39 continuous days of midwinter cloud. Nonetheless, if you come in out of the snowstorm into the atrium in the middle of the building, you find yourself amidst the bananas and jasmine and bougainvillea. You then realize that there isn’t a heating system, because we don’t need one, and it’s cheaper up front not to have one. Our household electric bill would be $5 a month for 4000 square feet if we bought it all instead of making more than that with solar power.

If you were to ask most engineers how thick your insulation should be in a very cold place, you’d probably be told, “Just as much as will pay for itself over the years in saved heating fuel.” That seems to make sense—you don’t want to pay more than it’s worth, do you?—but it’s wrong, because it leaves out something important. I don’t mean the environment, though it leaves that out too. It leaves out the capital cost of the heating system: not just the furnace but the ducts and fans and pipes and pumps and wires and controls and fuel supply that have to be paid for before you can get any heat, and yet none of that is counted in the normal calculation. But when you put in enough superinsulation and superwindows and air-to-air heat exchangers, you don’t need the furnace any more, and these other features cost less to install than a heating system would have cost. This means we had money left over, which we reinvested, along with an extra $1.50 a square foot, to save half of the water use (we were not very ambitious in those days), 99% of the water-heating energy, and 90% of the household electricity—that’s how you get down to $5 a month. And by the way, the house had a perfectly normal construction cost for our area. All the efficiency improvements had a ten-month payback in 1983; today’s technology is much better.

With lower construction cost and better comfort, we’ve gotten rid of cooling equipment in houses in climates where the temperature goes up to 115° F. For example, we helped design an experimental house in California, near Sacramento, where the outdoor temperature can peak at 113° F. It’s an ordinary-looking house and even has a dark roof, required by the homeowners’ association. It was originally designed to use 82% less energy than those built according to the strictest standards in the country (California Title 24, 1992). Yet Pacific Gas & Electric Co. figured that if this design were widely built rather than a one-time experiment, it would be $1,800 cheaper than normal to build and $1,600 cheaper in present value to maintain, because it doesn’t have a heating or cooling system. Still, at the end of a three-day heat wave the neighbors were coming over from their houses, whose three- and five-ton air conditioners couldn’t cope, to take refuge in this one, which had good design and no air conditioner. The last seven improvements that got rid of the air conditioner, by the way, were justified by the savings in capital as well as energy costs, not by the savings in energy alone, so it’s the same methodology that I described earlier.

Similarly, architecture professor Suntoorn Boonyatikarn in Bangkok got rid of 90% of his air-conditioning energy in a very nice house at exactly normal cost. We know how to save 80% to 90% of the energy used by big new office buildings that build faster and cheaper and get better human and market performance. We’ve shown how to save three-quarters of the energy used by one of those big all-glass-and-no-windows office towers in Chicago by fixing it up at no more cost than the regular renovation that saves nothing. Our record so far is designing improvements to an office air-conditioning system in California that would save 97% of the energy with improved comfort and good economics.

Thus there is obviously something wrong with the economic theory of diminishing returns, which says that the more you save, the more and more steeply the cost of the next unit of savings goes up until it costs too much and you have to stop. This is sometimes true at the level of components, but it’s also often untrue at the level of components: for the most common kind of motor, for example, up to at least 300 horsepower there is no correlation whatever between efficiency and price. There should be, because the more efficient motors have more and better copper and iron, but even if they cost more to make, they’re not priced accordingly. I don’t know why, but I’ll take it. The same is true for many other kinds of equipment. Do not assume from economic theory that efficient products must cost more; if you shop around, they often don’t, so our motto is: “In God we trust; all others bring data.”

The way to make the diminishing-returns notion definitely untrue is by combining components artfully into systems, because then if you keep going and save some more, you can often make the cost come down to less than you started with, as when you get rid of the furnace. Then you have very big savings that actually cost less than small savings or no savings. Of course, instead of getting there the long way around, why don’t we just tunnel straight through the cost barrier to our design destination? Then we can profitably get rid of a great deal of muda, a wonderful Japanese word embracing all kinds of waste.

There are two basic ways to tunnel through the cost barrier. The first is to get multiple benefits from single expenditures. There are many opportunities to do this; in fact, the arch that holds up the middle of my house does twelve different things, yet I pay for it only once.

The second way is to take advantage of improvements you’re making anyway for some other reason, as illustrated by that big Chicago office tower I mentioned. The building is twenty years old, so the seals around the windows are failing. All that glass needs to be replaced, and normally you would use the same kind of glass that’s already there, which is so dark that only 9% of the light comes in. We found we could let in almost six times as much light and a tenth less unwanted heat by using a special kind of superwindow that would block the flow of noise and heat four times better. Then we could bounce daylight all the way into the building and use very efficient lights and office equipment, cutting the cooling load fourfold. The cooling system could be made four times smaller and four times more efficient for $200,000 less than renovating the big old one. This saving would pay for the better windows and the lighting retrofit, so you would end up saving three-quarters of the energy at no extra cost.

In industry the opportunities are, if anything, more impressive. There are 35 things you can do to a typical motor system to save about half its energy, not counting the machinery it’s turning. Typically, the after-tax return on investment approaches 200% a year. The reason it’s so inexpensive is that if you pay for the correct seven improvements first, you get 28 more as free by-products. We’ve gained similarly high returns on investment by fixing up microchip fabrication plants to save over half the energy they use to make chilled water and clean air. Other high-return examples include designs to save two-fifths of the energy cost in an already efficient refinery and 70% to 90% in a new supermarket. All these examples markedly improve operational performance.

There have also been radical changes in process design—for example, in microfluidics, an art that can fairly often shrink a large chemical plant to the size of a watermelon! Then there is the revolution in materials durability, longevity, re-use, and frugality: for 37 years I’ve carried in my pocket a little L. L. Bean folding cup of stainless steel, which by now has displaced a great many paper and plastic throw-away cups, and I suspect it will keep on doing so long after I’m gone.

There are often valuable side benefits to efficiency. When a typical office is made more efficient, people will be able to see better what they’re doing, hear themselves think, feel more comfortable, and breathe cleaner air. As a result they will do more and better work, by about 6% to 16%. A typical office pays 100 times as much for people as for energy, so a 1% gain in labor productivity would have the same bottom-line effect as making the energy bill go away, and we are actually seeing an effect from 6 to 16 times that big. There are similar gains in industry, such as 40% higher sales per square foot in well-daylit stores, as well as in education, such as 20% to 26% faster learning in well-daylit schools (we’re trying that now in Brazil). These kinds of benefits are typically one and sometimes two orders of magnitude more valuable than the direct energy or resource savings, and can be marketed accordingly.

When we start putting efficiency techniques together, they interbreed and make new ones. I drive a two-seat Honda Insight hybrid-electric car that gets 67 miles per gallon, but that’s just the beginning of an automotive revolution that can reach all market segments. A typical mid-size suburban assault vehicle recently designed by a little firm I chair, which you will find on the web at www.hypercar.com, is illustrative: the car could be any size, shape, and style you want, but Hypercar, Inc. just happened to start with a mid-size SUV. Unlike most concept cars, this one, called the Revolution, is manufacturable and production-costed. It can accommodate five adults in comfort, up to 69 cubic feet of cargo, or two adults and two kayaks. It can haul half a ton up a 44% grade, yet it weighs less than half as much as a normal car of this class, such as a Lexus RX 300, because it’s made of carbon fiber. This is so strong you could run the car into a wall at 35 miles an hour with no damage to the passenger compartment, or you could run it head-on into a Ford Explorer twice its weight, each going 30 miles an hour, and still be protected from serious injury. It also bounces off a six-mile-an-hour fender-bender with nothing bent.

This car can go from zero to 60 miles an hour in 8.2 seconds, and it gets the equivalent of 99 miles a gallon, which is from five to five-and-a-half times normal efficiency for cars of this class, but it doesn’t actually use any gasoline; it runs electric wheel motors on power from a hydrogen fuel cell, storing the hydrogen safely compressed in tanks that are on the market. It can go 330 miles on just seven and a half pounds of hydrogen. The reason it takes that little is not only that the fuel cell is several times more efficient than an engine, but also that the car is so light, and has so little drag in moving through the air and along the road, that it can cruise at 55 miles an hour on the same power to the wheels that the Lexus RX 300 uses on a hot day to run its air conditioner.

The only emission coming out of this vehicle is water, which tempts me to put a coffee machine in the dashboard. It has a very stiff body, fast all-wheel digital traction control, and a smart semi-active suspension, so it should be very sporty. It can be designed to have none of the top twenty causes of breakdowns in today’s cars, but all of the flexibility and customizability of a “computer with wheels,” where the functionality is in the software and you could do the diagnostics, tune-ups, and upgrades wirelessly in the background. The car can be designed for a 200,000-mile warranty; its body does not rust or fatigue. We believe it can be made at a competitive cost at mid-volume, using dramatically—even up to tenfold—less capital, space, assembly, and parts. So early adopters win.

Why does all this matter? First of all, such vehicles of all shapes and sizes worldwide will ultimately save as much oil as OPEC now sells, giving the United States the potential to save as much oil as Saudi Arabia currently sells to everyone. It’s like drilling in the Detroit Formation and finding an eight-million-barrel-a-day gusher. Such vehicles will also decouple driving from its present impact on both climate and air quality, although not from congestion, and it permits a rapid transition to a climate-safe hydrogen economy in a way that is profitable at each step, starting now. It also enables you to use your car when it’s parked, which is normally about 96% of the time, as a plug-in power plant on wheels that sells back to the grid enough power to pay for half or more of the cost of owning the car. It doesn’t take too many people doing that to put the coal and nuclear plants out of business, because a full fleet of such vehicles would ultimately have five or ten times as much generating capacity as all the power companies now own. About $10 billion has been committed to this line of development since I sneakily put the general approach into the public domain in 1993 and got the auto makers fighting over it.

If aggressively taken up by manufacturers, such cars could enter production in five years, dominate in ten, and put the old way of making cars out of business in twenty. This could be the beginning of the end for the car, oil, steel, aluminum, nuclear, coal, and electricity industries as we know them—but also the beginning of successor industries that are more benign and profitable and fun.

Of course, instead of running out of air, oil, and climate we would then run out of roads, land, and patience. This is a major problem unless we also drive less, which calls for real competition, at honest prices, between all ways of getting around or of not needing to—for example, already being where you want to be so that you needn’t go somewhere else.

I used to work for the inventor of the Polaroid camera, Edwin Land. He said that people who seem to have a new idea have often just stopped having an old idea. To that end, perhaps you’ll allow me to rearrange your mental furniture a little bit. You’ve probably all seen the “nine-dots” problem that has appeared in textbooks on creative thinking for nearly thirty years:

The problem is usually stated as: “Find the solution that will connect these nine dots with only four lines without lifting your pen from the paper.” You begin with 1-2-3-4-. . .oops, 5, that doesn’t work; let’s try 1-2—no, that isn’t going to work either. Of course, what you’re supposed to do is think outside the box:


The great engineer Paul MacCready reports that one day a professor who uses this puzzle in class became a bit irked when one of his students demonstrated how to do it with only three lines:

I hadn’t seen this possibility because I was thinking of mathematical dots, which are tiny, rather than the actual plump dots—plump enough that this solution always works if your paper is wide enough. Then the other students, seeing this solution, started to feel liberated, and you know what happens then: they were able to solve the problem with only one line. It turns out that there are a lot of great one-line solutions. I’ll show you a few to get you started on your own.

The Japanese teach us the origami method, just folding up the paper until all the dots come together in a line:

Then there’s the geographers’ solution of using a very long line:

Or the mechanical engineers’ solution; being tool-using creatures, they said, “You didn’t say we couldn’t use a scissors!”:

Or the statistician crumples up the paper and says, “If I stab it over and over, eventually I will go through all my dots at the same moment”:

The one I like best came from a nine-year-old girl, who said, “You didn’t say it had to be a thin line, so I used a fat line”:

Obviously, the original design assignment was misstated as “find the solution with four lines.” This tyranny of the word “the,” as if there were just one way to do it, kept us from being properly creative in coming up with more elegantly frugal solutions and realizing that there is no box to come out of.

In that spirit, one of the companies we work with had what Edwin Land called “a sudden cessation of stupidity.” They were building a factory in which they needed to move some fluid around in a circle to transfer heat. They had the top European engineering firm optimize the pumping loop to use 95 horsepower for pumping, but after redesign it used only 7 horsepower, 92% less. Yet it worked better in every way and cost less to build—not because of any new technology, but because of two changes in the design mentality.

The first change was to use big pipes and small pumps rather than small pipes and big pumps. The friction in a pipe decreases as almost the fifth power of diameter, so how big should the pipe be? The engineering books say to make a pipe just as big as will pay for its extra cost over the years from the saved pumping power. Have you spotted the fallacy in this approach? It leaves out the capital cost of the pump, motor, inverter, and electricals! These components must all be big enough to overcome the friction, but their capital cost isn’t counted. Yet their size, and roughly their capital cost, will decrease as almost the fifth power of the pipe diameter, whereas the cost of the fatter pipe will increase only as roughly the second power of diameter. This means that when we conventionally optimize the pipe by itself as a component, we’re actually pessimizing the system. To optimize the whole system at once, you need to look at how the pieces interact, and you find that you should obviously use really fat pipes and tiny pumps: you save more capital cost (let alone life-cycle cost) by making the pumping equipment smaller than you pay extra to make the pipe bigger.

The other change was simpler and therefore more difficult—namely, to position the pipes first and then the equipment that they connect. Normally it’s done the other way around. Someone will plunk down the boilers and tanks in some arbitrary place and then call in the pipe fitters and say, “Please connect point A to point B.” But by then, A and B are rather far apart because other things were put in between; they’re at the wrong height; they face the wrong way. By the time the pipe gets from A to B, it goes through so many bends (all at neat right angles as they teach you in trade school) that the friction is three to six times what it would have been with a straight shot. Pipe fitters don’t mind this—after all, they’re not paying for your bigger pumping equipment or for your bigger electric bill. On the contrary, they think it’s great because you’re paying them by the hour, and they mark up the extra pipes and fittings. But from your perspective as owner, it would be smarter to have short straight pipes rather than long crooked pipes. To get that result, you need to retrain your pipe fitters to lay out supply piping the same way they lay out drains!

The twelvefold lower pumping energy and the lower capital cost result from these two simple changes in design mentality. But then you find that it’s also easier to insulate short straight pipes, so you just saved 70 kilowatts of heat loss, with a two-month payback. And then you realize that you left out many other benefits. For example, the whole system is smaller, lighter, and quieter, and it has a wonderfully clean layout for easy maintenance access—but there’s much less to go wrong, so the system will be more reliable. It will also last longer, because the pipe elbows that are no longer there are not being worn away by all the fluid trying to turn a corner. I must admit that we didn’t properly count those benefits. If we had, we would have used even fatter pipe and saved maybe 98% instead of 92%, so we left roughly another factor four on the table. We’ll do better next time.

The reason I’ve dwelled on this somewhat technical example is not just that pumping is the biggest use of motors, and motors use three-fifths of the world’s electricity, and every unit of friction you save in the pipes saves ten units of cost, fuel pollution, and global warming back at the power plant. Rather, I emphasized this example because it’s an archetype. Nearly everything in our society that uses energy and resources has been misdesigned by optimizing components for single benefits instead of optimizing a whole system for multiple benefits, which is the way biology designs things. If we get that right, we’ll typically get a factor 3 to 10 resource savings, at lower capital cost, with better performance.

An example of this from the world of real estate development is Village Homes, an early green project in Davis, California. It has narrow tree-shaded streets that interlock but don’t intersect with pedestrian and bike greenways with edible landscaping, running between the fronts of the houses. This layout reduces crime by 90% compared to adjacent subdivisions laid out in the normal dead-worm pattern that’s designed around cars instead of people.

A subtle feature of the design is little dips running down the middle of the greenways. These are natural drainage swales; after a storm they fill up with rainwater, a lot of which soaks in and saves on irrigation in the dry season. The rest runs off one day faster than mosquito larvae can hatch. It was really difficult to get permission for these swales, because the civil engineer said they would attract vermin. As soon as the developers realized that “vermin” is the engineering term for wildlife, they said, “Oh! We hope so!” But they were forced to post bond so that if the swales didn’t work, they’d be replaced with large concrete pipes that would remove cubic meters of water to some other location as quickly as possible. That is the way some civil engineers still think of water. But some of us think of water as habitat, as life, and fortunately these developers did too.

A few years after the system was installed, there was a hundred-year flood. The pipes in the adjacent subdivisions backed up, depositing their water on top of the Village Homes swales, which handled it nicely. The developers got their bond back.

Meanwhile, by not having to put those pipes in the ground, the developers had saved $800 per house, which they leveraged by reinvesting it into public parks, cropland, orchards, and community gardens. Then they found they could cover a lot of the cost of daycare, the homeowners’ association, and the parks’ maintenance from the proceeds of the almond harvest (this is the only subdivision I know of that is noted for the quality of its organic vegetables). Then there was the added benefit that all those plants cooled off the microclimate so much that the air conditioners would often stay off all summer. The quality of life was terrific. In fact, these properties, which had been considered so weird that the Realtors initially wouldn’t show them, are now the most desirable places in town to live. They are selling for $11 a square foot over market, in less than a third the normal time, and are usually snapped up by word of mouth before they are even listed.

Rocky Mountain Institute has a CD-ROM of 200 case-studies like this, across all the product categories of real estate. It complements our big end-to-end textbook, Green Development: Integrating Ecology and Real Estate. What these case-studies show is that the same design integration that provides multiple benefits from single expenditures will not only improve human, energy, and resource performance, but will also improve market and financial performance. That’s why developers are becoming interested in this approach.

What we learned from those design examples is that the secret of successful design integration is not to compromise. We are often told that design is the art of trade-off and compromise, as if it were a way of negotiating with yourself to make sure you can’t get what you want. There is a lot to be said for compromise in politics and conflict, but it is not a good design method—as J. Baldwin realized when he was gazing out the window during class, watching a pelican catch a fish, while the lecturer was talking about design being a compromise. J. thought: “Wait a minute, that can’t be right. Nature does not compromise; nature optimizes. That pelican is not a compromise between a gull and a crow; it’s the best possible pelican so far. After 90 million years, it’s quite a good one.” So if you find yourself needing to compromise among design goals, it usually means you haven’t yet hit upon the correct statement of the design problem. Keep at it; you’ll get there.

With all the potential for saving energy, it’s obvious that protecting the climate is not costly but profitable, because saving fuel costs less than buying fuel. That’s why the world’s biggest chemical company, DuPont, has said that its energy use won’t increase during this decade because the company will increase its efficiency at least as fast as the 6% projected annual increase in revenue. DuPont also expects by 2010 to get one-tenth of its energy and one-quarter of its raw materials from renewable sources, and to cut its greenhouse gas emissions to 65% below the 1990 level. The world’s fourth biggest microchip maker, STMicroelectronics, has even set a goal of zero net carbon emissions by the end of this decade, when it will be making 40 times the chips it made in 1990. We helped the company figure out how to reduce carbon per chip profitably by 92% now and by 98% or 99% soon. It makes the chipmaking plants work better and, more important, it makes new plants build faster and cheaper, which is the real key to advantage in that business. These changes are thus being made in the name of shareholder value. Smart companies are behaving as if the United States had ratified the Kyoto treaty; they make more money that way. Washington will be the last to know.

By the way, rigorous engineering and financial economics favor supplying energy at the appropriate scale for the job—something Fritz Schumacher knew and advocated. Our new book [published by RMI in August 2002] dedicated to him, Small Is Profitable, quantifies 207 “distributed benefits” that typically make decentralized electric production approximately tenfold more economically valuable than had been thought (www.smallisprofitable.org). In recent research for and with the Environmental Protection Agency, we’ve been finding that exactly the same thing applies to water and waste-water systems. I’m sure it applies to other technical systems as well.

Let me turn to the second principle of natural capitalism—to design production along biological lines, with closed loops, no waste, and no toxicity. The green architect Bill McDonough tells a nice story about this. A division of Steelcase asked him to redesign a cloth, used to cover the backs of office chairs, whose edge trimmings had just been declared by the Swiss government to be a toxic waste because of heavy metals and other toxins used in treating and dyeing the cloth. (That must be why it’s called “dyeing.”) Bill reports assessing 8,000 chemicals used in the cloth business, and rejecting any that could cause cancer, mutations, birth defects, endocrine disruption, persistent toxicity, or bio-accumulation. This left only 38 chemicals that were deemed safe! But those 38 made it possible to produce from natural fibers a cloth that looks better, feels better in your hand, lasts longer, and costs 20% less to produce. That’s because you are using ordinary, not exotic, chemicals, and with nothing left in the process that can hurt the workers and the neighbors, there are no longer any embarrassing conversations with regulatory agencies.

When the Swiss inspectors came back to the factory, they thought their measuring equipment must be broken, because it showed that the water coming out was a bit cleaner than the Swiss drinking water going in. That is because the cloth product was acting as an additional filter. This is an example of what happens, as Bill puts it, when the filters are taken out of the pipes and put where they belong—in the designers’ heads. This is also closed-loop production, because when you’re through with the cloth, you can compost it in your vegetable garden, or if you have a fiber deficiency, you can eat it.

At the University of Zurich, the introductory chemistry laboratory course was annually turning $6,000 of pure simple chemicals into $16,000 of hazardous waste disposal costs. Professor Hanns Fischer came up with the elegant idea of using the same lab techniques but turning some of the exercises around backwards: Why not separate the nasty toxic goo we made in the previous experiment back into the pure simple chemicals we started with? The students thought this was really neat; they volunteered so many nights and weekends to separate waste that they ran out of waste to separate. Waste went down 99%; cost went down $20,000 a year just in that one course. And those students will be very much in demand, because what they were learning from this new pedagogy was not once-through linear thinking but closed-loop cycle thinking, so now they can go out and save the chemical industry.

Another example is DuPont’s films division. Once almost bankrupt, it is now leading its market because the company gets back about $1 billion a year of used film from customers, using reverse logistics. It is made into fresh film cheaper than it could be from virgin materials. In addition, those clever chemists are dematerializing their product: every year they make the film a little bit thinner and stronger. Thinner means fewer molecules and lower production cost; stronger means higher value and higher price. With the cost going down and the price going up, profits go way up. Their then Chairman, Jack Krol, said, “We see no end to this process [of dematerialization].” Krol thought this trick could be kept up “indefinitely”—until, I suppose, DuPont is ultimately selling almost nothing but ideas.

What these various “bioneers” are doing is learning from the 3.8 billion years of Biosphere One design experience—a time of zany experimentation and rigorous testing in which the roughly 99% that didn’t work got recalled by the Manufacturer. There’s a wonderful book about this by RMI’s Director, Janine Benyus, called Biomimicry: Innovations Inspired by Nature, in which she asks, for example, “How do spiders make silk?” Spider silk can be stronger than steel and tougher than the Kevlar in bulletproof vests. Yet making Kevlar requires vats of boiling sulfuric acid and high-pressure extruders. Spiders don’t need that: they make silk in their bellies, at ambient temperature and pressure, out of digested crickets and flies. How do they do that? How do trees turn air and water and soil and sunlight into a sugar called cellulose, as strong as nylon but three times lighter? And then they turn that cellulose into a natural composite called wood, which can actually be stiffer and stronger than steel, aluminum alloy, or concrete—yet trees do not have blast furnaces, smelters, or kilns. How do they do that?

How does the abalone, in seawater at 4°C, self-assemble an inner shell twice as tough as our best ceramics? (The folks at Sandia National Laboratory have recently figured that one out. Now they can dip a silicon wafer into their magic goo for a few seconds, let it dry, and presto! It’s coated with hundreds or thousands of self-assembled clear layers up to seven times as tough as silica.)

Bioneering and biomimetic design are taking us to a world where the successful businesses take their designs from nature, their values from their customers, and their discipline from the marketplace. (This is exactly what the producers of genetically modified crops forgot to do, which is why their products failed in the market.) It’s a world in which conventional environmental regulation starts to look anachronistic, because so many of the firms that need it will already be out of business, having spent too much money and time making things that nobody wants—things that in the twentieth century we called waste and emissions. We now have a better name: we call them “unsaleable production,” which focuses us on the question, “Why are we making something that nobody wants?” Let’s stop producing it! Let’s design it out. That leads to very powerful innovation.

We typically achieve such innovation faster if we have good feedback. Systems without feedback are stupid by definition; but feedback is simple and powerful. For example, how clean a car would you insist on buying if its exhaust pipe, instead of being aimed at pedestrians, were plumbed back into the passenger compartment? How safe would you build your explosives factory if you also built your house next to it? (That’s what Mr. DuPont did in the old days, and his company has led in industrial safety ever since.) How do you suppose Admiral Rickover solved the problem of ensuring that welders would make extremely high-quality welds in the hulls of nuclear submarines? He told the welders and their bosses that they would all be aboard for the maiden dive.

The third principle of natural capitalism—the most interesting and powerful one, I think, which Jim Womack calls the “solutions economy”—provides the strongest kind of feedback by changing what we reward, changing the business model so that both the provider and the customer make money in exactly the same way—by doing more and better with less for longer. To do this, the “solutions economy” business model shifts from occasionally making and selling things to providing a continuous flow of value and service.

Examples are popping up everywhere. If you go to Europe or Asia, you’ll notice elevators made by Schindler, a Swiss company that is experimenting with not selling its elevators. Because the firm believes its elevators require less energy and maintenance than competing ones, if Schindler retains ownership of the elevators and pays the running cost itself, it can more cheaply and profitably provide customers with what they want, which isn’t an elevator; it is the service of being moved up and down. Instead of selling you an elevator, the firm leases you a vertical transportation service.

Similarly, Dow would rather not sell you a solvent. It’s a much better deal for both of you to lease you a dissolving service, after which Dow takes back the solvent and repurifies it. The more times it can be re-used and the less is lost on each cycle, the more money you both make. Dow can charge less, gaining market share. You pay less, yet Dow has more profit. In fact, if Dow can keep your parts from getting greasy in the first place, then no solvent is needed, and they can get paid for that too.

This takes us to a world in which, when a company tries to sell people a product whose use will deliver the service they really wanted in the first place, a smart customer will probably ask: “Why are you trying to sell me this product? If it had the operational benefits you claim for it, you’d want to get those benefits yourself by keeping it and just leasing me the service it provides. So why do you want to sell me this thing? There must be something wrong with it!”

The fourth principle of natural capitalism is to reinvest in natural capital. This is the easiest of the four because nature does the production; all we need to do is get out of the way and let life flourish wherever it wants to—it’s very good at that. Typically, those who learn to treat nature as model and measure and mentor, not as a nuisance to be evaded, are those whose business success depends directly on the health of nature around them—such as farmers, foresters, fishers, and ranchers. Allan Savory, the Rhodesian wildlife biologist, showed that the arid, brittle Western rangeland we thought was overgrazed is typically undergrazed, but it’s grazed in the wrong way. If the grazing pattern is carefully changed to mimic the natural co-evolution of grass and grazing animals, the result is actually more grass, more animals, and everything working much better. Then there is Wes Jackson’s work at The Land Institute on the high plains in Salina, Kansas, where he is trying to change agriculture from a monoculture of annuals to a polyculture of perennials that will look like a prairie, because that’s what works best there.

The rice farmers in California used to burn straw after the dry-rice harvest. Then they tried flooding the rice fields into a seasonal wetland instead, inviting in millions of ducks and geese, which provided free fertilizer and cultivation plus lucrative hunting licenses. The farmers harvested the previously burned silica-rich rice straw as a valuable building material. They are also paid for recharging the ground water. Although they are still selling rice, it’s merely a coproduct of these other activities, so the system is far more profitable. Thirty percent of the rice growing has been switched over to this system, which imitates some of the extraordinarily productive Asian and African coproduction systems.

I want to add the example of Gunter Pauli’s Zero Emission Research Initiative (www.zeri.org), because it shows how to reinvest in and with natural capital in the South. He points out that a billion people worldwide have poor housing or no housing, even though many of them live in places where bamboo, a grass that can be stronger than steel, grows prolifically. The Colombian architect Simon Veléz has figured out how to turn a hundred pieces of bamboo five meters long into a strong and beautiful 65-square-meter house. The bamboo grows in 100 square meters of bamboo thicket every five years. Including a cement slab and other amenities, the cash cost of the house is $1,700. Smoking the bamboo as a preservative method also yields a by-product of charcoal for cooking, which saves trees, and because the smoke brings acid to the bamboo’s surface, bugs won’t eat it, so it can last for 500 years. Growing the bamboo for structure and smoking sequesters enough carbon to sell to a broker for about $1,700, which means you just grew your own house, made it self-financing, and protected the climate—a nice example of what you can accomplish with integrated design.

You can achieve the same design integration and entrepreneurship at the level of a whole society. My favorite chapter in our book Natural Capitalism is the one about Curitiba, a Brazilian city the size of Houston or Philadelphia. Its population has quadrupled to two and a half million people in the past twenty years, and the city’s budget per person is 15 times smaller than that of Detroit. This doesn’t make it sound like a nice place to live. Yet, although it’s not paradise, the city has the highest quality of life in South America and has solved its problems better than any North American city I know. That’s because the people have treated their formidable social and economic and ecological needs not as competing priorities to be traded off among government departments fighting over budget, but rather as integrated, interlinked design elements with synergies to be captured. A brilliant design process, led largely by architects and by women, integrated from the start hydrology and landform, nutrient and waste flows, education and health, transport and land use, participation and dignity—and thus created one of the world’s great cities.

The heavy lifting was done largely by the private sector. In what’s widely considered the best public transport system in the world, for example, ten competing private bus companies are rewarded not for carrying more people, but for serving more kilometers of route, so they spread out and serve the whole city fairly.

Let me now illustrate how the four principles of natural capitalism fit together. Think about carpets. Carpet is typically made of oil. After ten or fifteen years it looks worn, so you have to shut down your operation, move out all the furniture, roll up the only-partly-worn carpet, and get rid of it. Each year millions of tons of carpets are sent to landfills, where they sit for ten or twenty thousand years—not a great use of oil or money or land. Meanwhile you lay down fresh carpet, glue it in, move back in, resume operations, and perhaps get sick from the fumes in the carpet glue. Does this sound like an intelligent design? Ray Anderson didn’t think so. As a result he’s been making Interface—a $1.5-billion company that makes carpet and interior-finish materials—into a natural capitalist company.

During 1994–2000, he added $165 million to the bottom line, gaining over a quarter of his total operating profit by wringing out waste through better resource productivity. He also developed Solenium®, a new product with unusual attributes. It contains no chlorine and nothing toxic. All climate impact of making, delivering, and maintaining it is certified to have been offset before it’s delivered. You can wash Solenium with a garden hose. It doesn’t stain, it doesn’t mildew, and it has excellent aesthetic and acoustic qualities. It also is four times more durable than a regular carpet but uses one-third less material, so seven times less carpet but uses one-third less material, so seven times less flow of material is needed to cover a square yard for a year—and then it can be completely remanufactured into an identical product, with no loss of quality.

This raises the obvious question, “Who wants to own a carpet anyway?” Don’t people just want to walk on it and look at it? If so, shouldn’t the manufacturer be leasing a floor-covering service instead of selling a carpet? That way there is mutual benefit from this durability and dematerialization. The answer is yes, and the way to do it is to deliver the carpet in the European fashion, as carpet tiles, under a service lease. Every month, the little elves come in the night and take away the worn carpet tiles, but only those that are worn, which are about one-fifth of the total. The worn ones are instantly replaced with new ones, so your floor always looks fresh, but now you’re replacing only one-fifth as much carpet. Multiply that by the previous factor seven saving, and you have 97% less material use. When enough of the worn tiles have come back, you remanufacture them, saving 99.9% of the raw materials originally used in the once-through carpet-selling model.

Now imagine that you’re a normal carpet maker, selling rolls of carpet. How are you going to compete with this company that uses a thousand times less raw material than you do, and ten times less capital, to produce a better service at a lower cost and a higher margin, and provides a tax-deductible operating lease to the customer? Answer: you’re not. This is an example of the sort of breakthrough competitive advantage that natural capitalists can gain. In addition, even though Interface manufactures less carpet, it employs more people to deliver the service than were displaced at the factory—substituting abundant people for scarce nature.

The next step, now underway at Interface and illustrating principle four of natural capitalism, is to reinvest in natural and human capital. The way Interface will do this could be to make its product out of corncobs derived from organic corn grown by poor black farmers in the deep South in a way that restores soil fertility. The farmers will also get paid for taking carbon out of the air and putting it back in humus where it belongs. It’s a reinvestment back into rural culture, economy, and community.

These innovations are good business: in the first four years on this new tack, Interface more than doubled its revenues, more than tripled its operating profits, and nearly doubled its jobs, all at the same time. And the workers are much more excited, because they no longer feel any contradiction between what they’re doing on the job and what they want for their kids when they go home. When that happens, neither the managers nor the competitors can keep up.

I was there when the designer of this remarkable Solenium product, David Oakey, wandered in with a dreamy expression, having just figured out how to do this impossible thing. He said: “You know, God must be an environmentalist. As soon as we figured out what questions to ask, it all fell into place, and we got every attribute we wanted, none we didn’t want, and a lot of cool stuff we never thought to ask for.” This is a typical outcome when you finally get the statement of the design problem right. It’s worth waiting for.

To sum up the prevalent practice that Interface is transforming: We take out of the earth, out of natural capital, substances that are grown or mined, and from that extracted flow we make a mixture of products and wastes. After the products are used, they are either thrown away or brought back to create value as what Dr. Michael Braungart calls a “technical nutrient,” or as compost to feed nature.

The trouble is that in this country, about 83% of what we extract is mined, and we grow only 17%, much of it unsustainably. The resulting flow of material, twenty times our body weight per person per day, is then about 93% wasted, either in extraction or in manufacturing, with only 7% going into products, of which about six-sevenths is consumer ephemerals, promptly thrown away after one use or no use. The remaining 1% ends up in durable products, 98% of which then are thrown away and 2% recycled or remanufactured. This system is thus approximately 99.98% pure waste—a huge business opportunity. Moreover, a lot of the waste is toxic, so when it goes back into nature, there being no other place for it to go, it harms the regenerative capacity we need in order to keep having the biotic resources and ecosystem services we can’t live without. This is a bad design. Let’s change it.

In a natural capitalist industrial system, we would grow more and mine less of what we take from nature. We would also extract a great deal less because of comprehensively improved resource productivity. This includes closing loops, recapturing resources in and after manufacturing, making products more durable, and dematerializing products—all of the activities that are rewarded by the “solutions economy” business model, which pays everyone for doing more and better with less for longer. As we design out waste, we also rigorously design out toxicity, so the small amount of remaining waste going back into nature is no longer harming regenerative capacity—which, on the contrary, we deliberately improve by reinvesting the financial profits that come from getting rid of the waste in the first place. That is how the four principles all link together.

Natural capitalism is consistent with orthodox market economics; it just takes economics seriously rather than literally. It rests not on environmental economics, which treats the earth as a minor external factor of production, but on ecological economics, which holds that (as Herman Daly puts it) “the environment is the envelope that contains, sustains, and provisions the economy.” Subject to that shift, natural capitalism uses all the methods and tools economists have developed; it just uses them correctly.

I use markets a lot. Creatively applied, markets are nifty. But they are meant only for the short-term allocation of scarce resources, and were never meant to be fair or wise. Markets make a wonderful servant, a bad master, and a worse religion. If we think they can substitute for faith or ethics or politics, we’re really in trouble. But properly used, markets can be very effective if they’re restricted to what they do well and not applied to things they can’t do at all.

We’re fortunate to live in a world in which over half of the one hundred or two hundred biggest economic entities are no longer countries but companies. Companies often have the leadership, management, skills, speed, resources, initiative, innovation, integration, and motivation to solve tough problems in a hurry. The companies we write about in our book are early adopters of the four operational principles of natural capitalism, and as a result they are gaining stunning competitive advantage and better short-term profits as well as happier customers and workers. They are proving what Edgar Woolard suspected when he chaired DuPont: he said, “Companies that take such opportunities seriously will do very well”—while, he added, “Those that don’t won’t be a problem, because ultimately they won’t be around.”

Maybe the biggest problem with capitalism—this extraordinary system of wealth creation built on the productive use of and reinvestment in capital, all four forms of capital—is that we’re only just starting to try it. But the early returns are very encouraging. I hope you will not only visit us at www.naturalcapitalism.org or www.natcap.org, but also send us your stories of what worked and what didn’t work, so that we can speed up our learning together about this new way of doing business as if nature and people were properly valued.

Question and Answer Period
How do you go about making the hydrogen for your car?

At www.rmi.org you’ll find a paper called “A Strategy for the Hydrogen Transition” (www.rmi.org/images/other/HC-StrategyHCTrans.pdf), which describes how to get there from here profitably at each step starting now. In the shorter run, most of the hydrogen will be made from natural gas in miniature reformers like those used in buildings to run their fuel cells to make power, heating, and cooling. If you integrate the deployment of building and vehicle use so that they reinforce each other, the transition will take place far more quickly. This can be done in part by leasing some of the first cars to people who work in or near buildings where there already are fuel cells in operation; then they can plug into the spare hydrogen-producing capacity available when the building isn’t experiencing peak loads. Then the cars can buy hydrogen from the building without the need for a separate fueling infrastructure, and the parked cars can then sell power to the grid. As more of the hydrogen appliances for buildings are produced, they too become cheaper and will be available for use at gas stations. This kind of vehicular fueling infrastructure is less capital intensive than what we’re spending right now to maintain the gasoline fueling infrastructure. Before long we will have built up a big enough market to justify making hydrogen in bulk and pipelining it in climate-safe, profitable ways. There are at least two established ways to do this—reforming natural gas at the wellhead and re-injecting the separated carbon dioxide, or using climate-safe electricity to split water (an approach that also makes renewable energy far more profitable). In addition, several kinds of experimental fuel cells, such as solid-oxide fuel cells, can directly use liquid hydrocarbons, and there are also direct methanol proton-exchange-membrane fuel cells. Bob Williams at Princeton even makes a plausible case for producing hydrogen more cheaply from coal than from natural gas, with carbon sequestration in both cases.

Do you think that all the components required for hydrogen production are already available cheaply enough?

We know how to make them cheaply enough if we make a lot of them. That’s particularly true of the miniature natural-gas reformer. It should soon be true also for the polymer fuel cell itself, where the engineers and materials scientists are now working out the details of durable materials and low-cost designs for manufacturing. What we don’t know yet is whether the private sector will go ahead on its own and put the infrastructure in place—just as, say, the telecommunications industry did with optical fiber, believing that “If we build it, they will come.” That turned out to be a poor theory in the case of fiber, but I think it would work for hydrogen if it were done right.

There is serious discussion in government on the subject right now. I heard a speech two days ago by the Secretary of Energy in which he said he wants to accelerate hydrogen deployment rather aggressively. And around half of the oil and gas majors are already excited about it because they’ll make more money on hydrogen than on oil. In fact, the heads of four major oil companies and several major car companies have already admitted that we’re entering the oil endgame and the beginning of the hydrogen era. As many people have said, including most recently former Saudi Oil Minister Sheikh Yamani, “The Stone Age did not end because the world ran out of stones, and the Oil Age will not end because the world runs out of oil.”
I believe that on a molecule by molecule basis water vapor is as active a greenhouse gas as carbon dioxide. In a typical fuel-cell vehicle like the Hypercar, how much water vapor is produced compared with what is produced today by an internal combustion engine?
Much less. The fuel cell is several times more efficient than a gasoline engine in converting fuel energy into traction at the wheels. And of course when you combust gasoline, which is roughly CH2, you also make H2O (and nearly all the rest is CO2, which harms the climate). Thus, to deliver the same power to the wheels, you’ll emit less water with a hydrogen fuel cell than with a gasoline engine.

This is even more true if the vehicle itself is inherently more efficient, like a Hypercar® vehicle. For example, Hypercar, Inc.’s Revolution midsize SUV design, getting the equivalent of 99 mpg from direct hydrogen, uses 0.0227 pounds of H2/mile. Since water weighs nine times as much as the hydrogen it contains, the Revolution emits 0.204 pounds or 0.0245 gallons of water per mile—less however much you divert to a coffeemaker! The most comparable conventional SUV, the Lexus RX 300, gets about 20 mpg, so it burns 0.05 gal or about 0.31 pounds of gasoline/mile. That gasoline weighs 14 times as much per mile as the hydrogen used by the Revolution, but is 87% carbon, so it contains about 0.0042 lb of H2/mile. The Lexus thus emits 0.38 pounds or 0.045 gallons of water per mile—roughly twice as much for the same payload.
The source of the hydrogen matters too. If the hydrogen was made from natural gas, the oxygen was already in the air and half the hydrogen was underground, just as for crude oil. But if the hydrogen was made by using electricity to split water, then the water was already in the hydrologic cycle and is simply returning to it.

You may also like to know that there are about 13 trillion metric tons of water in the atmosphere as vapor and clouds, cycling about every eleven days. Its effect on climate is very complex (as summarized in the Climate chapter of Natural Capitalism), but let’s do a simple comparison. If all the world’s half-billion light vehicles were Hypercar vehicles as big and capable as the Revolution concept SUV, each driven the U.S. average of about 11,000 miles a year (all extreme assumptions), they’d emit half a billion metric tons of water per year. If this water were all “new” (none from electrolysis or steam reforming), it would add 0.004% per year to the atmospheric water inventory. For comparison, the carbon dioxide of the atmosphere rose in the 1990s by half a percent per year, or two orders of magnitude more. Thus, the benefit of removing light vehicles from the climate threat vastly outweighs Hypercar vehicles’ water emissions.
 

Because of the decarbonization that’s been steadily proceeding for a couple of centuries, two-thirds of the fossil-fuel atoms being burned in the world today are hydrogen, not carbon. So to get to a hydrogen economy, we need only get rid of the last third (the carbon) and, often, eliminate the combustion—uninventing fire for fun and profit. [See also “Twenty Hydrogen Myths,” www.rmi.org, 2003.]
 

In the light of the September 11 attacks on the World Trade Center and the Pentagon, many of us are looking for the root causes. This brings us to U.S. policy in the Middle East and the importance of rethinking that policy. One explanation has a lot to do with energy resources, with oil and gas. Would you please give us your views on the current situation in terms of our dependence on oil in the Middle East?
 

The link has been clear for a very long time. We import about ten million net barrels of oil a day, of which five-odd come from OPEC, two-and-a-half from the Persian Gulf. We pay over $100 a barrel for Persian Gulf oil right now. That’s largely because, even before September 11, we were spending about $50 billion a year on the readiness costs of military forces whose primary mission is intervention in the Persian Gulf to protect U.S. interests. A decade ago we did indeed send a large number of our young people there in half-mile-a-gallon tanks and seventeen-feet-per-gallon aircraft carriers, because we had failed to put them in 32-mile-a-gallon cars here at home. If we had done that and nothing else, we would not have needed a drop of oil from the Gulf ever since 1986. There was of course a lot at stake in the Gulf region other than oil, but I really have a hard time believing we would have put half a million military personnel there if Kuwait just grew broccoli.
 

I’ve spent time lately with military people: last Wednesday I was at the Naval War College; two days ago I had breakfast with the Secretary of the Navy and a dozen Flag officers or their civilian equivalents. They are, I think, entirely aligned with the idea that negamissions in the Gulf, Mission Unnecessary, would be highly desirable, and that if Mideast oil dependence was dangerous before, it is intolerable now with the House of Saud and others looking teetery. In fact, two days ago I was on a panel chaired by Jim Woolsey, former head of the CIA, who gave a riveting talk on this subject. He classified the regimes in the region—other than the two democracies, Israel and Turkey—as either vulnerable autocracies or pathological predators. This is a situation we shouldn’t have to deal with, and it’s far cheaper not to.
 

We could dispense with Persian Gulf oil by improving the light-vehicle fleet’s efficiency by 3.25 mpg (assuming the recent refinery yield of 0.46 gallons of gasoline per gallon of crude oil). We used to do that every three years when we were paying attention; we could do it again and a great deal more. We could eliminate all oil imports straightforwardly by profitable actions on the demand side alone, and have a much more robust economy.
 

One of the short-term possibilities now being discussed in Washington and Sacramento is called “accelerated-scrappage feebates.” “Feebate” means that when you buy a new car or light truck that is inefficient, you pay a fee, or if it’s efficient, you get a rebate—both on a sliding scale. The fees pay for the rebates, so the feebate is revenue-neutral, not a new tax. An incentive to turn over the fleet faster is then added by saying, “When you get a rebate for your efficient new car, the amount will depend on the difference in efficiency between the new car you buy and the old car you scrap.” That way, the worst vehicles are removed from the fleet as quickly as possible. The car industry rather likes this method because it provides more market for selling efficient cars.
 

As we move away from Mideast oil and oil in general with due deliberate speed, perhaps even in the form of a real mobilization, we must be careful not to substitute even worse vulnerabilities in domestic infrastructure. Let me give an example. (If you want to dig deeper, our 1982 Pentagon study Brittle Power: Energy Strategy for National Security and many related readings are posted at www.rmi.org/sitepages/pid533.php.) The Trans-Alaska Pipeline System is the only way to deliver oil from the Arctic National Wildlife Refuge. Government data indicate the Refuge probably contains no economically recoverable oil, and even if there were any, it’s a decade away. But supposing it were there and now, consider what’s already happened to this particular pipeline. Running 800 miles through rough country, mostly above-ground and accessible by road or float-plane, it has already been sabotaged, incompetently bombed twice, and shot at on over 50 occasions. The operators came close to blowing up the Valdez terminal at the south end last October; one operator did blow up the least vital pumping station by accident in 1977. Two years ago, by pure luck, a disgruntled engineer was caught four months away from blowing up three key parts of the pipeline with fourteen sophisticated bombs. He didn’t have any particular grudge against the United States, he just wanted to make money in the oil futures market. This man was an amiable bungler compared to our adversaries on September 11. Three weeks ago this pipeline, carrying one-sixth of U.S. oil output, was shut down for 60 hours by one drunk with one rifle shot. And quite apart from this help, this old pipeline is suffering increasingly serious maintenance and management problems.

 Does drilling in the Arctic Refuge strike you as a reasonable centerpiece for the whimsically named Homeland Energy Security Bill? Somebody is not connecting the dots.
Fortunately, Mideast oil vulnerability and our vulnerable domestic infrastructure are both needless problems. A resilient energy system that is efficient, diverse, dispersed, and renewable, making major failures impossible, actually works better, builds faster, and costs less. That’s what happens if you let the market work, but it is the opposite of our present national energy policy. With some exceptions, the bulk of the present official plan increases energy vulnerability and is therefore worrisome to military professionals. It shouldn’t be this way. The Department of Energy should not be undercutting the mission of the Department of Defense.
 

How does natural capitalism deal with the distribution and not simply the creation of wealth?
I’m tempted to suggest that you read our book, because Paul Hawken specifically addresses this question in several of his chapters. Turning scarcity into abundance clearly makes it easier to uplift the deprived, although natural capitalism is not a panacea for our deeper political or ethical failures.
 

Let me put it this way in broad terms: the shortages of work and hope and security and satisfaction, and the resulting pathologies we see in much of our society that are projected worldwide, are an underlying cause of the rage we have recently seen expressed. They turn out to result from three interlocking kinds of waste: the waste of resources, of money, and of people. The Curitiba story (and there are many others like it) shows nicely that once you start to reverse those three kinds of waste, the pathologies reverse too, and you end up with virtuous circles instead of today’s vicious circles. I’m pleased to report from some of my discussions a great receptiveness among military as well as political leaders to notions like a Marshall Plan II under some other name. The United Nations Development Program has pointed out that for about $40 billion a year, everyone on earth could have basic water, sanitation, food, education, and health, including reproductive health. That is a small amount compared to what our country has just decided to spend on military actions against terrorism. I think there is a widespread feeling that giving people the hope of a decent life must be an essential part of our agenda. As my favorite admiral recently put it, “There’s no point killing the mosquitoes if you don’t drain the swamp.”
 

What can we do to hasten the changes you’ve outlined?
Make changes part of your everyday practice so that you have your own stories to tell in your business, in your neighborhood, in your faith community. There are a lot of people watching what you do, and the more you make specific changes that people can see and emulate, the more there is to talk about with them. That’s the way real change happens in our society; it very seldom comes from the top down.
 

At RMI, the way we have been trying to turn natural capitalism into the dominant business model is by working with early-adopting companies. Without even marketing, we’re working with over ten of the top fifty global brands. They come to us with radical ideas, and we help them achieve such conspicuous success as natural capitalists that their rivals are forced to choose whether to follow suit or lose market share: we use competition to do our outreach. We have to go further than that, though, and figure out how to work with management consulting firms so that the promotion comes out of their mouths with their brand on it. We must also locate other key leverage points, especially in the financial community, and figure out how to train trainers. And we need to turn the meme of natural capitalism into an exponentially self-propagating beneficial social virus.
 

How much area is available for photovoltaic arrays and for wind power? Is there enough alternative energy available to run the fleet of cars, for instance?
 

Way more than we need. You could meet all the annual electric needs of this country with photovoltaic cells occupying half the land in a square one hundred miles on a side, but in fact, of course, they shouldn’t actually all be in one place. They would be spread out on roofs, which are free—or better than free, if you are displacing building material. We could meet one-fifth of U.S. electricity needs with windfarms occupying 5% of the land area on the equivalent of four Montana counties, or three-fifths of U.S. electric needs just with profitable windfarms in the Dakotas; add Texas and Kansas and you’ve more than covered the other two-fifths. The area needed is actually not a problem; interestingly enough, it’s no more land-intensive to do these things than to run a nuclear or coal-fuel cycle. This has been known for twenty or thirty years. Nor is it materials-intensive. A pound of silicon put into good thin-film solar cells will put out more electricity than a pound of uranium in a light-water reactor. That’s because you keep using it over and over instead of just once. And an efficient car fleet could readily be run on sustainable biofuels or renewable hydrogen.
 

I’d like to install photovoltaics in my house, but I’m concerned about the economics of it.
RMI has a book on our website called Homemade Money: Saving Energy and Dollars in Your Home that will help you figure out what to do in what order to save lots of money through efficiency; then those savings can buy your solar cells.
 

Photovoltaic electricity is immensely more valuable than just as a commodity. Along with fuel cells, it is arguably the most reliable power source we know of, which is why both should be included in new buildings so that the power will stay on no matter what happens. It has extremely low financial risk because it builds quickly in small pieces as opposed to slowly in big lumpy projects. There is no risk of fuel prices going up—the God utility does not raise the price of sunlight—and this constant price again increases value if you use normal risk-adjusted discount rates. These financial-economics perspectives, which are in our Small Is Profitable book, are understood by any MBA, but they were not used by the utility industry until a year or two ago, and remain rare even today, to the detriment of shareholders.
Among other benefits of photovoltaics is that it’s more fun to know you’re not stealing from your kids, and that when the hundred-year flood takes out the power poles, it’s nice to be able—as we were—to call up the sheriff and the fire department and ask, “Do you want to come over and recharge your radio batteries? We’ve got juice.”

Concluding Remarks
I want to tell you a story from Borneo: in the 1950s, the Dayak people had malaria, and the World Health Organization had a solution. They sprayed DDT, which killed the mosquitoes, and the malaria declined. But there were side-effects. The roofs of the houses started to fall down on people’s heads because, it seemed, the DDT had also killed tiny parasitic wasps that had previously controlled thatch-eating caterpillars. The colonial government solved this problem by giving people sheet-metal roofs, but then people couldn’t sleep because of the noise of the tropical rain on the tin roofs at night. Meanwhile, among other side-effects, the DDT-poisoned bugs were being eaten by geckos, which were eaten by cats. As the DDT built up in the food chain, the cats died. Without the cats, the rats flourished and multiplied. Soon the World Health Organization realized that it had created a risk of typhus and plague, and hence felt obliged to parachute many (by one account 14,000) live cats into Borneo—Operation Cat Drop, courtesy of the British Royal Air Force in Singapore.

This nicely shows that if you don’t understand how things are connected, often the cause of problems is solutions. Our challenge and opportunity is to harness hidden connections so the cause of solutions becomes solutions.

This has been a day about connections. Some of them have been explicit, others you have to tease out for yourself. But I think it’s clear that we ought to understand and harness connections so that we can solve or avoid a problem in a way that also solves or avoids a lot of other problems without making new ones that oblige us to parachute more cats. It is essential to understand root causes as well as linkages.

I also want to emphasize the supreme importance of integrative design. You’ve heard this theme among all three speakers in different forms. We’re all designers, whether we know it or not and whether the outcome is the one we want or not. If we don’t pay attention, we will often design something we would never have intended.

I have lately become interested in the potential of what can be done with integrative design in the case of refugee camps, which were never designed in the first place. They are run by extremely competent and dedicated organizations—public, private, international, military—to try to deal with a situation in which people arrive at one place in increasing numbers. They may be wounded; they’re typically women, often with children; and they’re trying to get away from conflict or natural disaster. The aid agencies set up the camp according to military logistics—with grids of tents, latrines, schools, wells, and feeding stations—and then provide money and food for as long as it takes. We have maybe a hundred million people who are international refugees or intranational displaced persons, and more all the time; of these, perhaps ten or twenty million are in camps. Some have been there for three and four generations, and they can’t go home. There is no home any more.

If you think about how the camps work as a design problem, you realize that one agency is sending in beans and rice but no fuel to cook them with, so the refugees are cutting down the forest; the local folks, who were displaced by the camp, can’t live without the forest, so they come in and kill the refugees. Or you will find that another agency is delivering water through big spouts while another agency is providing little plastic jerry cans to distribute the water in, but the cans have small filling holes, and this is a culture that doesn’t know about funnels. So water falls on the ground and makes mud. Some bright person lays down a cement slab to stop the mud, but the water has to go somewhere, so they make a sump, and when people come to collect their water, they can also collect their malaria. This is a design problem, and nobody was seriously thinking about it. Then you find there’s no telecom except walkie-talkies for the administrators to run the place, but this means people can’t find their relatives, who may be in another camp. There is no way to get commerce going. There are no energy systems, hence no lights at night, so the women who weren’t already raped may well be. All this is a design problem, and it’s a design opportunity. Instead of latrines that are part of a linear waste-flow, they could be designed as a nutrient flow-back into the kind of biological system John Todd designs. Then the refugees could actually start producing pathogen-free food, and you wouldn’t have to keep sending in food forever. They could grow the kinds of food that boost immune competence, and then they wouldn’t get sick so often. There are a lot of missing links and open loops that can be closed.

We are trying to bring together people who have a deep knowledge of how the camps work with integrative whole-system design thinkers like John. We have some exciting ideas about how to go about re-designing camps, but we need to raise $350,000 to make it happen. (Our design charrettes on “sustainable settlements” are summarized at www.carebridge.info/carebridge/community/list.html.) Why is this important? Partly for the reason discussed earlier, that we won’t have peace or security as long as so many of our fellow humans are thus deprived, and partly because the refugee-camp integrative design concepts have far wider implications. If we can achieve a closed-loop, self-sustaining, restorative, socially vibrant, and healthy system in such an austere and dire environment as a refugee camp, that must also be useful for several billion other people trying to create sustainable settlement under difficult conditions. We see this project as having enormous leverage. We’re really trying to do a loaves-and-fishes trick of creating adequacy if not abundance out of almost nothing. I do believe we have the design tools—and nature has the fecundity and design wisdom—to make this possible.

In that spirit, I'll end with a poem called "Loaves and Fishes," by David Whyte, that appears in the front of Natural Capitalism:

This is not the age of information.
This is not
the age of information.

Forget the news,
and the radio,
and the blurred screen.

This is the time
of loaves
and fishes.

People are hungry,
and one good word is bread
for a thousand.

Amory Lovins, a MacArthur Fellow and consultant physicist, has advised the energy and other industries for nearly four decades as well as the U.S. Departments of Energy and Defense. Published in 29 books and hundreds of papers, his work in about 50 countries has been recognized by the “Alternative Nobel,” Blue Planet, Volvo, Onassis, Nissan, Shingo, and Mitchell Prizes, the Happold and Benjamin Franklin Medals, nine honorary doctorates, honorary membership of the American Institute of Architects, and the Heinz, Lindbergh, Time Hero for the Planet, and World Technology Awards. He advises industries and governments worldwide and has briefed 19 heads of state. He co-founded and serves as Chairman and Chief Scientist of Rocky Mountain Institute (www.rmi.org), an independent, market-oriented, entrepreneurial, nonprofit think-and-do tank. Much of its work is synthesized in Natural Capitalism (www.natcap.org). RMI spun off E SOURCE (www.esource.com) in 1992 and Fiberforge, Inc. (www.fiberforge.com), which he chaired until 2007, in 1999.
Amory Lovins may be reached through Rocky Mountain Institute.


Rocky Mountain Institute is an independent, nonpartisan, entrepreneurial, nonprofit think-and-do tank in Old Snowmass, Colorado, founded in 1982. Its diverse staff of ~80 foster the efficient and restorative use of resources to make the world secure, just, prosperous, and life-sustaining. Half of the Institute’s $10 million budget is earned through programmatic enterprise, chiefly consultancy for the private sector—an effort that advances the goals, refines the content, and spreads the concepts of natural capitalism. The remaining revenue comes from foundation grants and tax-deductible donations. RMI’s work is noted for technical depth, vision across boundaries, creative use of market forces, and engagement with commerce and community (far more than with government; RMI doesn’t lobby or litigate). In seeking new solutions to old problems, its people strive for faith, hope, and clarity; their hierarchy of needs is typically to save the world, have fun, and make money, in that order. RMI’s Annual Report, thrice-a-year Newsletter, and hundreds of popular and technical publications (many free) are available from:

Rocky Mountain Institute
1739 Snowmass Creek Road
Snowmass, Colorado 81654-9199
(970) 927-3851
www.rmi.org

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