In the News
Transcript of Interview with Jeff Immelt, CEO of General Electric Co.
The following is transcribed from an interview that took place on March 12, 2008, at the Wall Street Journal ECO:nomics conference in Santa Barbara, CA. The interviewee, Jeff Immelt, CEO of General Electric Co., was interviewed by two Wall Street Journal moderators in front of conference attendees.
Wall Street Journal (WSJ):
I think you deserve a lion’s share of the credit or the blame for really changing the way businesses are thinking about the environmental issue. In 2005, you launched ecoimagination and then last year, you were instrumental in bringing together a group of CEOs to form USCAP, which came out and, to me, felt almost unprecedented to say to the U.S. government ‘We have to put caps on global warming, basically regulate us please.’ Why did you do it?
Jeff Immelt (JI):
Well, I would say in the beginning, if we go back to ecomagination, we looked across our company and saw that technology was coming. I mean basically, the history of our company was wanting to bring innovation to market. We saw the technology was there that could drive clean energy and clean water at-scale to eventually get down the learning curve and be productive about it. We saw more than half the companies based outside the United States - you know, we’ve got probably nearly a $50 billion business in Europe today, so it’s a global company. We saw the emerging thinking on environmental technology and legislation. We saw seven states in the United States already had cap-and-trade systems already, and kind of this impossible labyrinth of regulations come their way, and we thought ‘This is a way we can get ahead of it and declare green is great.’ And you know, that really was the driving force that got us started.
WSJ:
Do you do this because you think the Earth is heading toward a crisis and you have a responsibility to deal with it? Do you do it because you believe General Electric has the opportunity to make money selling green technologies, more money than you make…obviously, you make a lot of money selling hydrocarbon-based technologies. Do you do it because it’s good for PR? Do you do it because you think carbon caps are inevitable and you want to be at the negotiating table?
JI:
I would say I work for investors and I don’t believe in hobbies. I don’t think CEO hobbies should have any role in it. I’m an investor, I’m a businessman and I’m a capitalist, so I believe that I could generate variants for my investors through technology. Originally, we decided to lower our own carbon footprint of Kyoto standards just arbitrarily to see what it would do. I thought it would cost us money, but it’s actually saved us $2 or 3 hundred billion or more. Remember, we started when oil for $20 per barrel, but at $110 let me tell you, all the things I’ve said make a lot of sense. I spent the first 12 years of my career in plastics, I’m familiar with the Clean Air Act, the Clean Water Act, OSHA 1910, I’ve seen all these things happen and I think that by the time they become law, if you’re a CEO and you haven’t been working on it, you’re behind. So there’s no percentage for any CEO in the world who thinks in his or her business that there’s not going to be carbon caps someday, and you have to get out ahead of them. I’ve studies this in a very pragmatic way. Now look, I’ve studied the National Academy of Science -- everyone’s going to pick their own favorite study -- and I would say when I think about it I get the people in our research center to train me on it, they basically say that global warming is a technical thing, it’s caused by man. You know, whether there are huge alligators in the Hudson River and ice birds in Cincinnati, that shit I don’t know. But I don’t want to be that smart and I don’t have to be that smart. What I’m here to say is, look -- this is the decision I’ve made for my company. In 2008, it’s going to generate $.15 per share. So that’s not a bad thing.
WSJ:
Let me ask though, as a businessman, as an investor, there are obviously always specific areas you can target to make money from. As an investor, I would imagine one of your foremost concerns is the economy in general. Now, you look for instance at the Congressional Budget Office that recently did a report about the leading climate bill in Congress and they said that it will dramatically raise consumer prices and slow the economy. What effect will that have on GE’s earnings?
JI:
You know, what I would say is that these costs are going to be more no matter what. We’re actually already paying for it. $110 oil, stuff like that, we’re already paying for it, the costs are going to go up. The question is is it thrust upon us in a ridiculous way or do we get ahead of it? We’re a head exporter of all our clean technologies; we’re a head exporter of all our water salvation technologies. I think this country could have a great competitive edge if we don’t put our heads in the sand. Pick any topic we’re going to talk about in the next couple days. Nuclear power -- there’s really nothing happening. This country could be a leader, could be a top. Look, the advantage I have that most people don’t have is I can try everything. We’re big enough I could invest in wind, solar, nuclear, coal, gas mutation, gas. But I just think our costs are going to go up, they’ve already gone up, and the question is, do we get ahead of it and bring these technologies down the learning curve ahead of time or does it just get pressed on us in an incredibly impossible way? And that’s what leaders have to decide. All three of the presidential candidates say that their first piece of legislation is going to be environmental, so I just think you have to get ahead of it. I think there are clearly allocations that need to take place; I think coal-bearing states have to be protected. But we live today in a certain kind of hell where nothing’s happening. There’s no leadership about what we want to do, so we have to get ahead of this.
WSJ:
I live in Washington. Increasingly, it feels like part of people’s business plan is to go to Washington, to the energy sector and get legislation passed that requires people to buy their products, so my question is, how much does ecomagination (interference) and how as a private investor do you justify having taxpayer (interrupted by JI)…?
JI:
What I would say is, basically the government tax policy or economic policy should reflect the benefit the to economy, which is what the government wants to have happen. Think about something like production tax. It’s been in place (interference)… The cost of energy was about $.15 a kilowatt-hour. You know, the project actually worked.
WSJ:
Do you think people want to buy it without the tax break?
JI:
Perhaps, but you know I’m the (inaudible) in the world. I think on this subject, we worship false idols (inaudible)… My entertainment business is regulated, my financial service business is regulated, my appliance business is regulated (interference). My own business is regulated (interference). Now, what about this production tax credit – is it the right public policy? You know what? If the U.S. isn’t buying (interference), there’s going to be 8,000 megawatts in Turkey installed in that 45 years. I’ll go there, but I think the production tax credit has worked.
WSJ:
Based on your experience, what do you think when you hear people say ‘We’re going to reduce global carbon emissions by 80% by the year 2050, not slow the growth, we’re going to reduce it.’ Is that realistic?
JI:
I’d say you better start today. I’ve worked for GE for 26 years. In my 26 years, we’re in our eighth generation of technology. I still sell the same energy products I sold 26 years ago. So there’s been no investor client to drive technology in this field. We haven’t built a nuclear power plant in 25 years. We haven’t built coal gasification in 25 years. So we better get it on. Now, what trajectory it goes on – is it 80% by 2050, is it 60% -- I think it can be a big number. But technology is the answer. As a country, we’ve been so afraid and averse to allowing the entrepreneurial forces of technology to take place, and I think in energy, they can have a huge impact.
WSJ:
And so you support a carbon cap to induce that technology?
JI:
I think there’s got to be some way to capture a price eventually for carbon. And if you get a price for carbon, you can get people who can think intelligently about how to invest in it. The most profitable power plants of today are the nuclear power plants that were built 30 years ago, but the CEO who built those plants probably got fired. So how do you make a 30-year decision on a 2-second market scene?
WSJ:
Wouldn’t carbon tax be more efficient? Most industries don’t want that, because they want to be at the table making decisions.
JI:
I think it’s a great debate. We came down in the beginning with USCAP. I think that in stocks, it was reasonably efficient. The European experience is mixed at best. We talked about tax, but we thought that for where USCAP was at the time that using the word ‘tax’ was so polarizing, that it was difficult to have the discussion.
WSJ:
But cap-and-trade is a tax. It’s just not one you can see.
JI:
Yeah, it has the aspect of being market-driven and that’s what happened in stocks, but I think some way to capture a price for carbon is a great debate.
WSJ:
You mentioned the competitive dynamic in the world today, where we face extreme competition from emerging countries in Asia and elsewhere in the world. Does it make sense for you to say that the U.S. is going to impose a cap on its businesses, but there’s going to be no such cap in China, in India?
JI:
I think what USCAP envisioned and what legislation will try to do is have some market clearing mechanism for what’s going to happen globally. But we’ll do $15-16 billion in ecomagination products, probably $2-3 billion with China and India, so it’s a great opportunity for this country to develop technologies that are going to be used on a global basis. I think sooner than eventually. I think in the very short-term, are going to be used outside the U.S.
WSJ:
Isn’t it the side issue of sending jobs overseas? There’s been a debate in Congress about phasing out incandescent light bulbs. I believe you make all of your CFLs in China and I think your own union is kind of upset about this.
JI:
We’re a $15 million exporter. Almost all of our exports are clean energy technology. Locomotives, gas turbines, jet engines. The incandescent light bulb…I said to our union a while ago ‘I’m not going to protect a 120-year-old technology (interference).’ There are a hundred factories in China. The only thing that makes our light bulb industry remotely interesting is the new energy standard: LEDs, CFLs. A lot of those are going to be made in China because there’s a huge market in China. A lot of our locomotive, gas turbines and jet engines are made in the U.S. We make the most efficient gas turbines in the world. All but three of them went outside the U.S. So I think that clean energy as an export is one of the best stories this country has today.
WSJ:
What do we do if we don’t get these caps? What do you do about the industries that are energy-dependent? You could have a cap over here in the U.S., but people could simply move their businesses overseas.
JI:
Dow is probably the biggest national gas under the USCAP. We’ve got two auto companies, three oil companies, we’ve got Aloca, Rio Tento. So a lot of big industrial companies and big energy consumers are here because many of them feel like we’re already paying an inflated price and want to find a way to get ahead of this whole process.
WSJ:
You also have other customers who have not bought into this agenda and you were going to sell much of that equipment to coal those 11 coal fire plants in Texas…
JI:
I think sometimes this stuff is not popular the first day it happens. But we’ve got six utility companies that are part of USCAP. TXU wants to join USCAP. I think it’s very rare in the history of GE will try to get out; basically, we just want to do our job. In other words, it’s no great thrill for me to do this stuff. Basically, we just want t keep our heads down and do our job. But I think that what’s happened now is a worst-case scenario. A dozen states have their own cap-and-trade systems…(interference). You know, I’m not an environmentalist, but this has got to happen. So if business just lets it happen and has no voice at all, we’re going to have the worst of all worlds, which is what we have today. Don’t stick your heads in the sand. I don’t know what and anti-technology (interference). You guys are worried about something else. The day this bill gets passed, you guys can both turn and write about something else. I’ve got to go to work that day.
WSJ:
Why is it anti-technology to be concerned about the potential cost of this on the economy?
JI:
The most effective thing we can do is burn oil. That’s the cheapest thing we can do. The second-cheapest thing we can do is only install 40-year-old coal technology. But coal gasification is going to cost more. The first plants are going to cost 20, 30 maybe 40% more. But then the next plants are going to cost less. The Chinese are going to do it, India’s going to do it. The Chinese are going to build 40 nuclear power plants. If I never build another nuclear power plant, my investors are going to be fine. But I find that the nuclear discussion is maddening because nothing’s happening.
WSJ:
Quick show of hands from the audience, who thinks that nuclear power is a critical piece of solving the global warming crisis. Yes or no. Yes? No? We’ve got few nos.
JI:
I think the audience should go to bed tonight being really depressed. We’ve been talking about oil reform for 4-5 years. If we start talking about nuclear today, it’s going to come online in 2018. It’s 19% of the U.S. power generation today, there’s no way it’s going to be 19% in 2020, it’s going to be 15%.
WSJ:
Because we don’t have the plants…
JI:
So I’d say our thought and our actions are totally inconsistent.
WSJ:
When you go to Washington and you talk to the powers that be, do you talk about this? And the response you’re getting…
JI:
Here’s a story. I say to (interference) who in their right mind, we’ve had OPEC for 25 years. What capitalist in their right mind would spend one minute of storage if you guys aren’t going to build any plants? Coal gasification and nuclear power are like going to the Super Bowl to see teams that never go on the field. So I think if something happens in the U.S. today, it’s going to be gas and wind. If we make gas and wind, that’s OK, I don’t care. I’m a big believer in diversification. I think the only way to energy independence is people should be allowed to use (inaudible) because we’re so far away from that and I think in some ways it’s cast-off. But energy diversity, energy control through diversity. Let’s get control over our future because we can have it all – we can have wind, we can have coal, we can have it all.
WSJ:
OK, so the price of gas is up to $109. That’s an incentive to go to Canada and extract the oil sands, that will make us more energy-independent. But, that’s worse for global warming, that’s worse for CO2 release than other alternatives.
JI:
I think it can’t be your only approach.
WSJ:
But you’re doing it.
JI:
I think we should be working toward diversity. We should have big water projects on the coal sands; it’s a big water polluter, so I think there’s technologies that can go into that. But I think we’ve got to do nuclear, we have to have coal technologies, we’ve got to have cleaner gas, we’ve got to try conservation, which is the most important thing. We’ve got to have all these things or we’re not going to have any real progress.
WSJ:
What do you think about what happened in the presidential race yesterday?
JI:
Energy is one of the 3 or 4 things that is actually important. I’d like to know what they want to do on cap-and-trade, where we’re going with clean exploration. There’s a technical renaissance that this country could go through that could really make us a (interference).
WSJ:
If people really believe this is such a big issue, why won’t they pay what needs to be paid? Why do we have to have some sort of sectoralized (JI interrupts)…
JI:
There’s such a time discrepancy in this industry, this unique industry, that by the time you decide there is a real problem, by the time you decide that there is a real shortage, by the time there’s a grid in place that actually facilitates a low-cost energy distribution, micro-thermostats, things like that, it ain’t gonna happen. Number two, don’t worship false idols. The government has its hands in almost every industry we’re in, whether we want to say it or not. There’s tax deductions for home mortgages. People think that the housing industry isn’t government-regulated? You bet your ass it is. OSHA 1910, from 1992, it was going to kill the chemical industry. All the industry lobbyists got together and said ‘This is crazy.’ For us, it was $400 million of insurance bets. Two years later, we had (interference) going to the factories, so.
WSJ:
Just before we leave this, and look, she’s church, I’m state, OK, so no false idols. But still, you’re talking about carbon, and carbon is so fundamental, and carbon emissions and hydrocarbon fuels are so fundamental to the way we live our lives, by putting caps that will reduce emissions by 80% by 2020, you are talking about a regulatory scheme far bigger than ozone, far bigger than any regulatory measure this country has taken in decades.
JI:
Now, this is the wonky opponents’ view. I don’t know, you know. I think if you’ve got standards, you know. When CAFE came in the late 70s, I was selling plastic in Detroit. We sold about 10 pounds of plastic per vehicle to every car that was made in 1980. Before, cars had 80 pounds per vehicle. Did anybody like CAFE? Everybody hated CAFE. But it worked!
WSJ:
What about SUVs, trucks and Hummers?
Ji:
But it, at a period of time, drove real fuel-efficiency in the late 70s and early 80s in Detroit. As a company, I’ll go wherever. I’ll sell wind, I’ll sell gas, we’re working on batteries for hybrids, we’re working on CFLs. I’ll do whatever. But what’s your favorite part of our energy policy today, what’s you’re favorite part about where we are? What’s your favorite part about what the market is doing today? Just name it.
WSJ:
Jeez, I like the price I pay when I fill up my car.
WSJ:
Do you ever worry that this could backfire and get out of control? Everyone, and I think it’s a legitimate thing for business to want to go to Washington, be at the table and have some say when the decisions are being made and have some certainty, and that certainly a goal out there as we’re talking about the different standards around the country and how you want some uniformity. But there is a certain fervor that comes with this entire thing.
JI:
I worry about it because I have 170,000 in the U.S. and I don’t want them to lose their jobs. I know the value of a GE job, I don’t want to hurt the economy. Most NGOs don’t want to see coal exist. I personally don’t think that’s very smart. But the only way you fight that fight is by being in the arena. I think we’ve got a much better chance, Jim Rogers and I, and I think Jim took more arrows than I’ve ever seen a CEO take. But he was replacing nothing. It’s not like the utility executives had a great plan. He was trying to put one forward. It wasn’t like USCAP was perfect, but it replaced nothing. I would say that the best chance we’ve got to have a thriving coal industry is by driving coal gasification and getting these plants built.
WSJ:
OK, let’s open it up. One of the things you’re all going to learn over the next 48 hours is we really want to be interactive. The first person we’re going to put on the spot is Pat Wortz (PW), so I hope you’re ready Pat, CEO of ADM, to give us the view from where you sit of what you’ve heard Jeff Immelt say and question him, you know. We’ve been too easy on him.
PW:
Thanks. Maybe a little background on ADM. It’s, of course, a large agricultural processor. We are in a diverse amount of businesses. For the purposes of today’s and tomorrow’s discussion, I’m sure people will talk about bio-energy and bio-fuel. Jeff, you are a supplier of water systems to us, so I agree that a diverse supply of energy is not only what this country but the world will need for the future, so we need to go after everything, because the demand is not going to come down. If anything, demand will continue to grow. Conservation is important. In the aspect of why go from a Wall Street perspective or a capitalist perspective, I tend to turn to the young people. The way to get future employees and the way to get them excited about a future is to have an opportunity to make a difference. And if you can make a difference in the things they’re interested in – and in this case, it is diverse amounts of energy technology – whether it’s the scientists, the engineers, the chemists, the food technology experts, the energy experts, they want to make a difference in terms of the future, so, I’m interested in the people side of ecomagination.
JI:
People graduating from college today are mission-driven, so whether it’s healthcare or green technology, our ability to recruit has never been higher than it is right now, not just in the U.S. but around the world, so I think that’s a very important aspect. And I would say in terms of bio-fuels, we’re designing all of our jet engines, all of our turbines, all of locomotives so that they can some day run on palm oil, bio-fuel, things like that, which I think is going to be another big growth industry for this country and globally.
WSJ:
Bjorn Lomborg, who is this Danish guy who did the Copenhagen consensus about setting priorities, his suggestion was that rather than having a regulatory scheme, the government divert a certain amount of its budget to technology. Would that be, in your mind, a good alternative to more regulation?
JI:
Look, again I would say that if for some reason we said any kind of market mechanism is just not allowable, unfathomable, that’s the second-best approach, I would think. Only about $3 billion of VC money went to clean energy last year. That’s nothing in terms of what could be applied. So that’s the second-best thing. And again, when we did USCAP, the idea was to hit it with the five things, technology being one, cap-and-trade one, allocation one, globalization. So we had four or five principals we tried to package, and technology was clearly one of the big ones.
WSJ:
Jim Rogers (JR), let me call on you. Jeff already talked about the arrows you took for joining USCAP. But why did you do it? And how do you respond to what you’ve heard here tonight?
JR:
We were in a place where we needed to move forward. But Jeff, you talked about technology, which is the key to building a bridge to all-carbon world. But I think one of the things that came out of USCAP was the recognition that we needed both a regulatory regime that put a price on carbon, but also significantly greater funding of technology in the United States. Talk a little bit about what you see in China and India, and what that’s doing to the worldwide commodity markets and the direction their going, because I have the sense that the Chinese are a lot smarter about some of these environmental issues than the press has historically attributed to them here in the U.S.
JI:
First of all, healthcare spends about 8% of its revenue back in the R&D, as an industry. So if you took all the healthcare industries, multiplied them by .8, that’s the R&D. Energy is less than 2%. And the difference between energy and healthcare in a year is something like $50 billion per year, as an industry. It’s really what I would call a technology deficiency. And so that’s what we have to make up vis-a-vis what could happen on a technical scale. And then when you go to China, their government will, there’s a governmental force is called the NDRC in China. And they use government R&D money and it gets very focused very fast. And so they’ve decided they’re going to do nuclear power, they’re going to do nuclear power. Right now, we’re working with them on a couple of big, you know we’re working on a couple of eco-cities in China. There was a great article in the Journal about Australia running out of water. You know, China is implementing that technology now. So there’s an ability and a will to move quickly outside of the United States and if we don’t catch up, I think it’s going to leave us in a technical imbalance.