MODERATOR: All right, folks. Hi everybody. Welcome to the Foreign Press Center. As you know, last week was Earth Day, one week ago today, so in that spirit we've invited some folks from Wall Street to come by and give their perspective on what's going on in the clean technology sector. From left to right with have with us John Eber, who is the head of energy investments with J.P. Morgan Capital Corporation, Jeff Holzschuh, who is a vice chairman and chairman of the environmental committee with Morgan Stanley, and Andrew de Pass, head of sustainable development investments, Citi Alternative Investments. And they'll each give a few minutes of opening remarks, and then we'll open up to Q and A. So, take it away.
MR. EBER: I guess I picked the wrong seat. Thank you. Thanks for having me here today. J.P. Morgan's got a lot of activities in the environmental sector. My particular area of focus in investing equity in energy projects - renewable energy products. So we've been active investing in mostly wind power for the last three or four years in the U.S. and, more recently, getting involved in solar and geothermal. So we've been investing equity on a project level basis in wind farms throughout the country. Probably about 44, 45 wind farms we've invested in so far and expect to continue those activities as long as those investments continue to be attractive, while we get involved like, probably solar and geothermal as well. I know we have other groups that are involved in other areas, but I'm really not able to speak to those too well since I haven't had much involvement in that other than the project level on the equities. So I'm happy to answer any questions anybody has in that regard.
MR. HOLZSCHUH: I'm Jeff Holzschuh. I chair the firm's environmental policy committee as well as work in the firm's investment banking area. So I both have responsibilities for our policy issues as it relates to the environment, some of our investment as well, and also our banking relationships with clients and our internal position on what we do about the environment. So we can talk about, I think, a pretty broad spectrum of things that Wall Street's done where capital is getting committed in this area beyond the investment area that John just talked about, but also of things we're doing to trade emissions credits, make investments around the globe to create emissions allowances. We've tried to take our firm -- it announced by the end of the year it will be carbon-neutral. We'll reduce our own greenhouse gas by 10% in the next couple of years, so we're trying to do things both internally, with our clients -- We've created a carbon bank which will -- we've committed about 3 billion of capital to be used on behalf of our clients to help them put environmental focus on their own activities. I guess we've invested about a billion and a half of our own money in this sector and many other things - wind, solar, smart grid, title, electric cars, things across a pretty broad spectrum. So it is clearly, in our view, a major theme that's here to stay. And last year, around some 5 billion plus in venture capital was put into this area. So it's -- the private sector is filling a big void here.
MR. DE PASS: My name is Andrew de Pass and I run a group at Citi called Sustainable development investments, or SDI. SDI was created in April of 2007 as a stand-alone investment center within Citi alternative investments as part of Citi's overall commitment to climate change, for which we announced a 50 billion dollar commitment across all of our businesses at Citi, and the allocation for SDI was $2 billion dollars, to be invested for a period of up to 10 years. So this is a private equity group focused on renewable and alternative energy, but also water, waste management, energy efficiency, carbon credit markets, more of a developer of carbon credits, as well as sustainable products and materials. We take a view around sustainable development and its importance to address very critical issues as we look to significant population growth in the next one or two decades. So if you think about what sustainable development means, it means using the planet's resources today to ensure that future generations can grow. There's issues around use transformation and conversation of our resources that creates scarcity and waste. Conversion of fossil fuels is one component. The waste stream is emissions, which has contributed to the problem of global warming. But we also have serious issues around what we do with our waste, and also with water scarcity. So we take a broader view than just clean energy, and have an investment center focused on the whole gambit of sustainable development.
Let's open up to questions. Remember to identify, please, your news organization or fronter. Nicolas?
QUESTION: Hi, I'm Nikolaus Piper, Sueddeutsche Zeitung, German daily newspaper. I have a question about what the -- well, the framework of your work. The question goes to all of three -- all of you three. What is the relation between profitability and the green tech. Is the green tech more something like a marketing issue, or something to make your company look green, or has it to do with profitability?
MR. DE PASS: I think to answer the question from Citi's standpoint, we're looking for an appropriate return against risk among the parameters for private equity that any of our investment centers in alternative investments would have to follow. So we're not sacrificing return for risk. We think the opportunity is significant, that we can make good money for it but at the same time have an important contribution to the issue of sustainable development. So in fact, you get both. You can make good return against risk, and also do something good for the planet.
MR. HOLZSCHUH: Yeah. From a Morgan Stanley perspective, I think it's a very broad question. We clearly have an obligation to our shareholders, our employees, everybody that works in our organization to be responsible in this area, and we're trying to do a lot of things to be helpful in that area. Specific to our investment function, we -- I think sustainable is the right word. We don't think it's sustainable unless there is a profit associated with the investments that one makes. And as we look across our client base, just trying to make these very similar decisions in their own businesses, you see that application. Whether it's General Electric, or BP, or some of the bigger global companies who view environmental expenditures as every bit as important as some of their fundamental investment decisions on hard assets. So I think it's a mixture of social and fiscal responsibly, but again, very important think about it as a sustainable concept, not just a social investment that we don't expect a return from.
MR. EBER: From a J.P. Morgan perspective, in a similar -- my particular team s strictly a for-profit group. We've been investing in renewable power since 2003. it's all run as a profit center. We have other people in the organization who are involved with things that are just trying to be a good corporate citizen, such as trying to reduce our carbon footprint, etcetera. But all of my activities have been focused on for profit investments, which is maybe one of the reasons why we've stuck to, sort of, wind and solar and geothermal so far, is they've been easier for us to get comfortable with because they don't seem to be as risky as maybe some of the new technologies, which are worthwhile activities but are going to entail a little bit more risk in terms of capital deployed.
QUESTION: My name is Yanchun Yang. I represent Economic Daily of China. We -- I have two questions for all of the panelists, the speakers. The first is that in talking about sustainable development, alternative energy, it seems that neither of you have mentioned the ethanol, which creates a big crisis of food in this world. So I would first like to know your comment or definition on the sustainable alternative energy. And secondly, in the relation to the errors you lead and you operate in all your three organizations, do you mind giving me a raw picture of how much, either in percentage or in proportion of your business versus the total business and if this is only a horizon three thing, which is for trial, or reserving bases for your organization itself, or is it open to your investors, as an investment vehicle? Thank you.
A PARTICIPANT: Want me to start?
Mr. HOLZSCHUH : I'd be happy to. Let me take them in pieces. Because of senility I'll do them in reverse order. So that -- the answer is, yes. We do have vehicles for which outside investors participate. We've actually acquired a venture capital firm who spends all of its time spending in the renewable clean tech area and they have many outside investors. And so they're out raising another new fund. We have made multiple -- twenty private investments in some of these companies, and again, we have investment partners in each of those, and they span the entire gambit of technologies and different parts of sustainable investment portfolio. Specifically to ethanol, which is one of your questions, I think it's a very difficult scenario to explain briefly. But clearly, there are many different forms of ethanol. The one I think you're referring to is corn, for the most part, which has driven up the price of the food stock and I think that is a bit of a mixed policy problem as it related to subsidies in both the farm community and in the generation of the fuel. But, there are many forms of ethanol, whether its sugarcane or biofuels now, that will create different forms of biodiesel, bio ethanol, that I think we think do have potential in the future. And that's clearly -- if you just look at the overall emissions, about a third of it is transport and about a third of it is power generation, and about a third of it is industrial chemicals. So that is a very big, important piece, the ethanol transportation piece, and I think they'll be many, many new technologies there. But we do have to get some of the pressure off of corn. No doubt about it. I'm sorry, there was a third piece which I can't recall.
(Question is repeated.)
Well, the organization is quite large. It's a hundred billion dollar organization, so I think our investments in this area -- we've made a billion and half direct investment. We've committed three billion to trade it. We've committed several hundred million on internal things to green up our buildings, recycle, do all the things that one does as a socially responsible entity. I don't know what the gross expenditure would be if we wrapped all that up. But we have real estate investments, we have many more investments as a firm, all of which will have an environmental overlay and expenditure associated with them. I can tell you that it's very important to our board of directors. Our policy reports directly into our board of directors, and it's something that the management is very focused on. So it's an important piece of our business globally. Also, on the banking side, we probably have called on or had relationships with over 200 companies in this space. We cover them in research, economics, several different pieces as I'm sure these firms do as well. So it's integral to what we all do.
MR. EBER: We took a look at the alternative fuel space when we first got involved in alternative energy five years ago, and I don't think I want to go into all the details, but sufficed to say we haven't made any investments in alternative fuels. Instead, we decided to focus in on alternative energy, which is what took us into the wind arena, which is where we've made the bulk of our investments. We have raised four and half billion dollars of equity for projects in wind. About 2 billion of that is our own capital that we've invested in these projects, and we've just started investing in large solar projects, again, last year. So, from just a pure investment standpoint, the fuels didn't look attractive to us and the power sector has been. So we followed that. And I've got 16 people that work for me on a team, and that's all we focus on is investing in these assets. So it's a large business. Now, we have 170 thousand employees, and I don't even know how many assets we're up to now. So two billion - it's a serious commitment, but in the scope of the firm, you know, it's still modest. Now, part of that is because there's only so many opportunities to invest in the first place. The sector is growing at a very rapid pace on the power side, but it's still got a long ways to go before it's going to be as large as the traditional power sector in the U.S. We right now have less than 2% of our power coming from renewables. And I don't include hydro in that. So we've got a long ways to go before we could catch up to some of our European counterparts on the power sector and I expect that our investments there will grow significantly as we go forward.
MR. DE PASS: At this point in time, we're investing primarily Citi's proprietary capital, so not available for outside funds. Secondly, we have stated a $50 billion dollar commitment to climate change across all of our businesses, which includes, of course, lending which is large. Principle investing along the scope in sectors I mentioned, we have $2 billion dollars of proprietary capital to invest a couple hundred million a year. That's excludes areas like tax equity for wind, etcetera. This is pure private equity. With regards to the question about ethanol. I think that when a lot of private capital came into biofuels, first generation using food as a feedstock in ‘05 and early ‘06. looking back it was -- I don't think anyone expected the impact on these food prices, although it was a discussion point and a risk. I think that the issue of food prices is multiple factors, whether its biofuels, or hedge funds speculation, or China or India, it's a combination. So things are very different today than back in ‘05 and ‘06 and I think it's important to put that in perspective in the context of the food for fuel debate, which is quite serious, of course. From our standpoint, from sustainability, when we look at biofuels there's a couple of issues. It should not exacerbate the food for fuel debate, or cause impact on the cost of food. This is from today's perspective, not looking back on 2005. Certainly when things are different. We would always want to try to be the lowest cost global producer, and supply a feedstock that is ready logistically and also not with significant price volatility. So then you look at areas that have natural benefits, like sugarcane in Brazil. But then you have to be careful to make sure that you're not cutting down natural forests to plant. You have to make sure that the labor practices are appropriate, etcetera. So this is why you see a lot of focus on cellulostic ethanol as an alternative that can use pure waste products. Switch grass or other woody waste that there's a lot of focus to commercialize. So, from my group, SDI's standpoint, we're focused on second generation biofuels that aren't going to cause this problem, primarily around cellulosic. But I'll tell you, they're still years away from being commercially viable.
QUESTION: Lennart Pehrson with the Dagens Nyheter, Swedish newspaper. I wonder if you could say something about if you expect investments in this sector, how it could be affected by more general environment and economic downturn, credit crunch, and also maybe you see now with the increasing oil prices more of a pressure on new investments in domestic oil production. President Bush made a push for it this morning.
Anybody?
I answered the last one, so it's your turn.
Mr. HOLZSCHUH: Again, I'll do them in reverse order. I think we have seen a pick up in people's efforts to look for new sources of oil and gas. I'm not sure that's driven by any comments by the President or anybody else this morning. It's probably driven by $10 gas and $120 oil, but we clearly need to continue to diversify source, and we need to continue to use technology to go find new source. As to your prior question on economic downtown, actually, this is an area that's fascinating because it's so fundamental to the infrastructure and the growth in many economies that I don't -- our sense is that we're not going to see a large drop off. We will see a drop off, I think, in some venture and some private equity investments, but this area in particular is incredibly important to GDP growth in may parts of the world that we continue to believe that sustainable investments will be made and increase in size over the next several years.
MR. EBER: I agree. The downturn is helping, in a sense, to allow us to focus our energies on the better opportunities. The ones that make the most sense. The ones that are going to be good for our firms as well as good for our partners and good for the country. You know, we were getting a little overheated in some of these sectors over the last year or so, and right now everyone is being a bit more measured, I think, for the investments they're making. So capital is tighter than it was, there's no doubt about it. But there's still plenty of capital out there for good opportunities. And that's what I think, probably, all our firms are trying to focus on. Just find the best opportunities that are available.
MR. DE PASS: We see the demand for new water sources, new waste management processes, and/or clean energy not being effected by the global credit crunch concentrated in the U.S. and parts of Western Europe. That said, we are building infrastructure that has to be project financed, so we will see some of the terms get a little bit less favorable, but the financing is still available. Less favorable just means you probably have to put in a little bit more equity and the spreads might be a little bit higher. But of course, your reference rate libbers (phonetic) come down significantly.
QUESTION: Hi. My name is Jean Cosme Delaloye. I work for the Tribune Gernaime (phonetic) in Switzerland. Recent column in the BusinessWeek said that although clean energy will flourish in the future, it might be hard to pick individual stocks for -- to invest in, because some might be already, like, overrated. Is that the case? Do you see it that way? And the second part of the question will be how did you follow -- what's your assessment of the conversion of TXU in Texas? Is it interesting for -- ?
A PARTICIPANT: Well, I don't have anything to do with stocks.
MR. HOLZSCHUH: Yeah, I'll take the second part. I actually worked directly on TXU, which is now called EFH, it's Energy Future Holdings. I think the story for the environment in that case is that the number of coal plants that they projected to build was cut dramatically from 11 to 3, primarily as a response to the environmentalists having a dialogue with the company and with the new owners to try to manage emissions over time. And so they put in a very aggressive program to deal with efficiency, to deal with some investments in some of these renewable technologies, clean tech, and then also to try to make sure the engineering of all the new base load coal plants were set up such that when clean coal technology becomes available they could take advantage of it immediately. So I think that's a very good example on a practice basis of how the environmental community has begun to interact with the corporate community as it relates to big merger and acquisition activity. I'll let these guys talk about their investment returns.
MR. DE PASS: I mean I think the clean energy sector, like any sector as an investor, you have to look at evaluations against growth and also that companies are appropriately capitalized to withstand the issue of the credit crunch, so to speak. So you can look at individual stocks, and they might seem overvalued. You just have to be a disciplined investment manager. So, yes, there's been discussion that some stocks, you know, it feels like the internet boom. It's very different, though, because we need to build clean energy infrastructure. The issues of climate change, energy security and the volatility of energy prices are not going away. So, yes, stocks can get pricey or cheap, for that matter, or might not be well capitalized or they may, and that's really the discipline of the investment manager although what we do is more on the private side. But still, we have public stocks as reference and some sectors, as a result, we have not been able to make a lot of investments in when they were pricey like PB solar, or Inthum (phonetic) solar.
QUESTION: My name is Olli Herrala and I come from Helsinki, Finland. My question is about the real money. Like, money flows? To the BC funds and funds like how fast is the real investments really growing? How much money is moving in this market? Thank you.
A PARTICIPANT: On the venture capital side?
QUESTION: Yeah. On both ways. As to the funds, the funds flows.
MR. EBER: Mostly, what I see is just the funds coming out of the private equity firms into the industry. And I see a modest amount of capital coming in that direction. Modest for what I'm doing, mainly because most of that is seeking fairly high yields, and those yields don't exist across the spectrum on the renewable side. They exist in certain parts of it so -- parts of the solar arena, for example. There's energy technologies, rapidly changing opportunities, so I see the private equity going a little but more in that direction than many of the actual operating projects that we've been investing in, most of which are attracting more of a principle capital from firms like ourselves and the other firms represented up here, and from other large financial institutions in the U.S.
MR. DE PASS: Actually, just to -- brought some statistics from new energy financing in case you ask this exact question and it's quite interesting. As it relates to clean energy investment, renewable energy and energy efficiency, the total growth between VC, private equity, public markets and asset investment was 92.6 billion in ‘06 to 148.4 billion in ‘07. So that's a 60% increase. So that's significant. So fund flows are increasing. Importantly, from just the private equity and venture capital arena, the growth was 7.3 billion to 9.8, 06 to ‘07. Public markets - that is, IPOs and secondary, 10 and a half billion to 23 and a half billion, which is significant. That includes the ebadrola (phonetic) IPO at 7.2 billion and asset investment, which is important to build clean energy infrastructure - increased from 50.3 billion to 84 and a half billion - half of that in the wind sector.
MR. EBER: Those are worldwide numbers?
MR. DE PASS: Those are worldwide numbers. So fund flows have been increasing at quite a good clip.
MR. HOLZSCHUH: And that's a fund but again, that does not pick up probably another hundred plus billion of beginning money spent on nuclear projects. Things where, if you want to broaden this discussion, would include other forms of potential clean energy including base load facilities, clean coal, nuke, some of the gas that -- that number could be hundreds of billions. But specific to Andrew's comments, that's tracked fund money that's been put into this space. These are monies that governments -- Abu Dhabi alone announced a clean city for $18 billion this year. In theory, you could put that money in the pile too.
MR. EBER: And assume that mixes together all the actual infrastructure built along with the seed money and the new technology because it seems to be the infrastructure side is where the really large dollars are being soaked up, because it's one thing to work for a while on a new technology, but once it hits and its productive and now you need to start building facilities, there's a significant amount of capital that's needed. Just look at just the wind sector alone. It's soaked up a huge amount of capital worldwide. And it's going to continue to do so because business feels they can now be competitive with base load power. And solar is trying to get there right now. They're -- we invested in a solar facility last year that was the first one of its type built in 15 years and finally is producing power on a utilities scale. Most of the solar in the U.S. has been PV, sort of rooftop type power, and now we're getting utility sized plants built. And the ones that are on the drawing boards, each of them are a billion and a half dollars. And those are only 250 megawatt solar facilities. So the capital, the serious amount of capital that I see is going into the actual building of the infrastructure. And that's really just getting going in terms of its percentage, at least in the U.S. It's percentage power.
MR. HOLZSCHUH: Let me just mention one other thing, which is the three fIrms actually work together over the last twelve months to create something called the Carbon Principles, which is a set of parameters much like the equator principles in the past where the firms would try to educate, think about efficiency options, renewable energy options, and then ultimately having to build new base load generation, think about the cleanest ways to do that. And define a much more enhanced and rigorous due diligence process that our firms would go through in order to underwrite securities to finance those facilities. So you can see, and I think there will be multiple other firms on the street join us on that effort. It was also -- signatories to that were multiple clients, and also environmental defense fund and NRDC. So I think all three of those communities coming together to actually proactively try to deal with this issues, specifically in the generation side, is something that wouldn't have happened historically.
QUESTION: Mikael Tornwall, Swedish business newspaper Dagens Industri. Two questions. One quick about when you say that so much money is going into utilities, does that mean that things are actually happening? Not only research but energy is being produced? The second, more tricky question, is about subsidies. First of all, do you think that this development is something that can happen without government subsidies? And can it even be a problem that it will lead investment into the wrong directions, like for instance, making ethanol out of corn when we shouldn't do it?
MR. EBER: Good question. That's a very good question. Well, the subsidy question happens to be a very timely question right now for the wind and solar, geothermal space. The federal tax subsidy, the production tax credit on the wind side and the geothermal side and the investment tax credit for solar are both scheduled to expire at the end of this year, so Congress needs to renew it. They seem to want to renew it but they haven't been able to get that renewal passed. And those industries which have been moving along at a tremendous pace in terms of actually building and installing a lot of power are going to slow down significantly, if not come to a halt, if that subsidy is not renewed. Because it's important in terms of -- especially for the newer technologies like geothermal and solar, but it's also been very important for the wind business. And, yes. A lot of power is getting built. More so in the established technology, wind. Last year there were 5200 megawatts of new wind power installed in the U.S. The year before there were 2800 megawatts. The U.S. installed more megawatts of wind that any other country in the world last year, and is on a pace this year to probably install 25 or 30 percent more megawatts than that. So there's a lot -- and that was, I think the number is something like - I hope I've got this right - 35% of all the megawatts -- yeah. 35% of the new U.S. electric generating capacity on a name-plate business was wind, which is up from 20-some percent the year before and maybe 10 or 15 the year before. So power is getting built. And mostly, though, in the areas that are established where people feel the risks are low. And that will happen in the solar sectors as the technology gets more acceptable.
MR. DE PASS: I think as investors, we want to see visibility for our sectors that don't require government subsidy, but we do understand in the short term, some is required as scale is built and costs come down, as in the wind sector. It's certainly not helpful to investors to see the instability of issues around PTC and ITC and extension from year to year. And one should ask them self the question. There was a renewable fuel standard passed, but for some reason there seems to be some problem in Washington passing or extending ITC and PTC for wind and solar that are truly sustainable, clean every alternatives. Probably a question for your Washington correspondents.
MR. HOLZSCHUH: But the question is fair, which is if you put solar today against the other generating technologies without the subsidy, it would have a very difficult time competing.
MR. EBER: Well, even with the subsidy, it doesn't compete.
MR. HOLZSCHUH: Yes, solar is still a challenge. Wind gets close on a post-subsidy base.
MR. EBER: Depends on what projection you make for oil or gas or coal.
MR. HOLZSCHUH: Right. And the reason that's important is that if you take any, I think, reasonable projection of growth in our economy over the next 20 years, wind and solar aren't the answer by themselves. We need a big effort on efficiency. We need a big effort -- we're going to need to build some other heavy base load generation in this country and it's got to either be clean coal or nuke. And so, given the lead-time to build those, we could find ourselves in the next four or five years in this country being power short in two or three different markets around the country. And you've seen that in other places on the globe as well. So the subsidies and the time to build and those cost to build are not going to -- I don't think are going to work on an annual basis to make this a smooth growth profile.
QUESTION: Christine Mattauch from Germany. I'm interested in how you deal with nuclear power. Is it a clean energy for you? Or is it an alternative investment? Or how do you deal with it?
MR. EBER: We're not looking at any nuclear investment options because I'm not aware of any that are out there right now. So if they're there, I imagine they're in the very early planning stages. And by the time we get involved investing in projects, they're within a year or two of being put into service. So I just haven't seen anything in that space as of yet.
MR. DE PASS: It's not within our mandate at this time, although I agree with Jeff that it's got to be some part of the solution. With regards to our investment mandate, it's not included.
MR. HOLZSCHUH: It is part of mine. I spent a lot of time on it. We have a handful of U.S. companies that have filed applications with the Nuclear Regulatory Commission to build new nuclear facilities. That process takes a fairly long time, couple of years. Probably a five year build cycle. So we're not going to see a new nuclear unit probably for six or seven years, earliest. That's in the U.S. Around the world there are units being built. The French are building a unit in Finland. There's -- Chinese unit's going to go up. There are other places. Currently Korea, where nuclear units are being built. I think the U.S. has yet to grapple with three or four different technologies and cost estimates that people are comfortable, that they can compete on a cost basis as well. Because of the long lead time, the immense amount of materials and labor that is escalating in cost so rapidly, and new technology, it's going to be a challenge for the capital markets to finance these facilities by themselves. And so our government has put out a loan guarantee program. The first three or four units will clearly come under that program, and they'll guarantee a portion of the debt in order to get them through their construction period. So nuclear has to be part of the solution, I think, for us in the U.S.
QUESTION: Ed Pilkington. The Guardian from the UK. Given what you've said before about risk and profit, and given the race against time that we've got with global warming, how far can venture capital go in the search for new solutions to the problem? I'm thinking or carbon sequestration, hydrogen cars, or things that we haven't even heard of yet. Or is this something that government must be responsible for? And a related subsidiary question, without giving trade secrets away to your rivals, what's the single most exciting new technology that is not yet on the market but is in development that you're keeping your eye on?
MR. DE PASS: The -- they're two separate questions. So I have an investment mandate to generate a return against risk. If I can find an opportunity to invest in that also creates in the context of coal as a feedstock, a pure stream of carbon, which is the start for sequestration, then that's a good thing. With regards to the tipping point for climate change in solving the coal problem, that's open for debate. Do I personally think venture and private equity can tackle that in a timely manner? No. As a firm, do we make comments about what actions should be taken? Not on a macro basis, but we try to be helpful like we were with equator principles with the carbon principles on how our activities ought to be governed around this important issue. A company that we co-led a round of investment in in September of 2007, we're pretty excited about. Called GrapePoint (phonetic) Energy, it is a coal gasification process that is more efficient economically and process-wise than IGCC. If we're able to scale if up from demo to first commercial plant, that will end up hopefully with coal waste streams like petcoke (phonetic) in the tarsands (phonetic) of Alberta, which is a real problem. Produced methane, as opposed to syngas (phonetic) at a cost that makes it economic against the price of gas, but also create a pure stream to sequester. So why is that exciting? Tarsands are a huge resource to serve North America, create big waste stream. Petcoke is just sitting there at the same time. Not energy efficient. Huge need for gas to upgrade the sands to useable oil. So this GrapePoint Energy solution using Petcoke, producing methane for upgrading of the tarsands in my mind is very exciting and it was also exciting to companies like SunCore (phonetic) that invested alongside of us back in September 2007.
MR. HOLZSCHUH: I just had a couple things. I think there's a handful of exciting companies in every silo. I really do. If you go around the world and look at some of the things that are being done in China on methane capture and you look at some of the new technologies just to deal with the intermittency of when, for example. That's a technology in and of itself. How does that integrate with the grid? How can we use that as a system more efficiently? You look at some of the lighting technologies. Some of these, you know, they're basic in, kind of, their application. They're very complex as to how you put them in to a -- you know, do we want to be Australia and mandate the use of -- get rid of incandescent light bulbs? There are customer choice issues and then there are technology issues. The technology is fascinating. And one of the things that is obvious in the venture space, or should be obvious, is it's about, sort of, companies and technology. And a lot of them have great technologies and don't make it. Some of them have technologies that aren't quite as exciting but better management teams or are more well capitalized, or take advantage of market opportunities quicker. So it is a traditional start-up company type investment for the most part. As they get bigger and bigger they get more and more strategic and I think you'll see they'll start to differentiate themselves. But the returns have been quite handsome for those that have done that to begin with. I think the first part of your question was more along the lines of, "will this really get integrated and will it be a big part?" You know, from a policy perspective if you just watch the political races, and you watch, kind of, chambers of commerce and you watch regulatory bodies or you watch the front page of a periodical, every one of those is all green. All environment. So it would be shocking to me if this were just a flash in the pan and it went away. I think it's going to be fundamental to the way we do business going forward.
MR. DE PASS: Of course, you need a price for carbon in the U.S. and a global system extended out 2012, which is a key factor, as you know.
MR. HOLZSCHUH: The second round of Kyoto, to Andrew's point, is critical. Whether we can convince China and India and the U.S. and other major economies to do this together is one challenge. There's a difficult challenge in and of itself just in the U.S. to figure out how to do that and I think there's a clear movement in Washington to get legislation on carbon in the next couple of years. Maybe not effective for four or five years, which means the real carbon capture question you asked is when is that going to be commercially viable? We see the generators and the people who are actually using the technology 2020 or later, is probably a fair guess as to when we can actually capture it and sequester it.
QUESTION: Hi. Angelo Plaze (phonetic.) My question is as a company, for example, CitiBank. I just was skipping through this green shopping guide, and I just saw as CitiBank, you are the worst company in the banks environmentally. Are you doing anything, like -- is this going to affect you, your bank, being on the list? Because now a days it's going to be these type of things. People are going to be more conscious. They will look through which companies should we invest? Which companies should we put our money in? Who's environmentally conscious? My question is I heard J.P. Morgan saying, gentlemen saying this his company is doing the recycling and everything. And when you walk into the Citibank you don't see recycling very much. It's very old fashioned. And what about electricity? And you planning to change all these bulbs and to put new technologies so that you can save in energy? Like, basic things throughout your banks. Any strategy for that? Thank you very much.
MR. DE PASS: Obviously, you know, Citi's very large and I have a very small little effort within Citi, and I'm not sure exactly what list this was, because we've shown up at the top of the list in many cases for energy efficiency. We have one of the first large data centers in Frankfurt that is green. Efforts with the Clinton global initiative in cities to reduce energy use of our real estate stock. We've moved to paperless statements and others that you might not see in a Citibank branch but certainly what goes out in the mail can be very problematic from a waste stream standpoint. So, again, I don't know exactly what your source was but we are taking action around some of these items that you've mentioned.
MR. EBER: I think a lot of the companies in the U.S. are just -- it's amazing how long it takes. I know our firm has had an initiative going on for the last two or three years through an environmental area who's very interested in the investments I'm making but spending a lot of time worrying about what they're doing with the trays in the cafeteria and how we're recycling the paper, and whether or not we're using the right kind of limo service that's using hybrid cars. And they list that they have that they're monitoring is about 20 pages long. And the initiatives that are going on are extensive. But it takes quite a while, especially if you have an international company with tens of thousands of people. But I think a lot of the firms here in the U.S. are very focused on trying to save costs on the energy side as well as do the right thing for the environment. And there's a lot of initiatives under way, not only amongst our firm but I think amongst a lot of other firms in the U.S.
MR. HOLZSCHUH: The one thing I'd say is that there's some really exciting technologies that we've taken advantage of as a firm as well. I think a great example is we're got a facility up in Westchester where we use energy at night that would normally go to waste. We make ice. We cool the whole building the next day by blowing air through the ice and use it for air conditioning. We've used -- we've completely redone all the water flows and the airflows in every one of our buildings, or we're in the process for every one of our buildings. And, you know, gotten a fair amount of awards for the greenest building in Australia and things like that. So not only is it front of mind, as we've discussed, but what we've been amazed at is almost all the projects have a considerable economic return. And we've driven energy cost down 30% in the buildings that we've finished with this retrofit. We've reused printer cartridges. We used to use them once. We use them now upwards of 20 times. You make initial capital outlay but the payback is quite attractive. So it's a learning curve for our firms as it is for other commercial enterprises, but would really, you know -- I think our purchasing, administrative, operations people have done a phenomenal job in taking advantage of some of these new technologies.
QUESTION: Hi. I'm from France. Caroline Talbot. I was wondering, did you measure how much you saved during a year for the bank? Just for the bank.
MR. HOLZSCHUH: Yes. We were -- I think to date the only one that's gone out and said we wanted to be carbon neutral next year. And so we went out and measured our entire carbon footprint globally for the firm. We're making capital investments now. We're getting some returns on the early investments, but over the next three or four years we expect to save substantially. But, for an organization like ours that travels all over the world, has buildings all over the world, investment companies all over the world, you can imagine that's a very complicated footprint. But quite small in the scheme of things vis a vis an industrial company, because we don't make widgets and we don't -- we're generally a vendor of most of those. We've been able to push some of that back on, and we're actually helping our clients figure out, whether the automotive industry, airline industry, other ways for them to be creative and use the financial markets to manage this exposure. And I think Andrew mentioned it, but as soon as we get some form of global price on carbon, we expect that as a trading market to be one of the biggest commodity trading markets in the world. Trillions of dollars. Not billions, not millions. Trillions of dollars. So I think the measurements are going to be substantial. We trade a -- we're a very active trader of these credits in Europe, at this point, which is really the only actively traded market in the world.
Anyone else?
QUESTION: (Jean Cosme Delaloye, Switzerland) You mentioned GE earlier on. They made a -- they invested a lot in green energy. I mean, clean energy. And they came short of expectation in the previous quarter. Is this -- does this worry you as an investor and is it showing the limit of the model?
MR. HOLZSCHUH: Well, I think in fairness if you went back and looked at where GE probably got surprised, it was in their financial services business, which is the business we all work in. Not the Eco/Imagination part, which is making power equipment, making appliances. Those businesses are actually doing quite well. If there is a surprise, and I'd let them comment, but it's in their financial business. Not in the fundamental concept of being green.
QUESTION: Do you think they should split the eco business from the rest?
A PARTICIPANT: I 'll leave that up to you. I don't have a point of view on that, no.
Anything else? All right. Well, thank you very much for our panel.
Thank you.
