Read An Excerpt

From Chapter 21: The Good Earth

We are killing the earth with friendly fire.

It has only been a few generations since we humans moved beyond the basic struggle for survival, but the cost of winning that fight has been huge. We have used the earth’s coal and oil in such gargantuan quantities that the last three generations have now consumed more of those precious resources than all the generations that came before us.

The warning signs are clear. We need to understand what we have done and, more important, radically change what we are doing. We face serious questions that need to be answered now, and I believe entrepreneurs are the right people to wrestle with one question in particular: How do we go forward in a manner that not only creates value for ourselves and our stakeholders but is also mindful of the threat to the earth and its inhabitants?

I came to clean air first as a child, then as a parent, then as an owner of an oil refinery, and finally as a veteran of the battles that broke up our nation’s telephone and computer monopolies. As a child, I remember when it was time to give the crops their dose of DDT. “Get out of that cotton patch,” Mama would holler to me and Charles Junior, “we’re going to poison the cotton and kill the boll weevils.”

My grandfather, who was a doctor, used to say that next to penicillin, DDT did more than anything else to stop death in our swampy, mosquito-infested part of Louisiana. Today, we understand the unintended consequences.

An eye opener was Rachel Carson’s terrific book, Silent Spring. She was the canary in the coal mine that triggered today’s Green movement. President Jack Kennedy so honored her at the White House.

She warned, “The most alarming of all man’s assaults upon the environment is the contamination of air, earth, rivers and sea with dangerous and even lethal materials.” She singled out DDT and not only set Congress on the path toward banning it, but all these years later, thanks to that ban, she helped guarantee the survival of the bald eagle, our national bird. Poisonous chemicals in the food chain had so seriously depleted the numbers of our national bird that it was on the endangered species list. Once DDT had worked its way out of the ecosystem, the bald eagle’s survival rate increased and today it is no longer endangered. Closer to my home states of Louisiana and Texas on the Gulf Coast, we also saved the Eastern Brown Pelican, the Louisiana state bird.

As a parent, I was faced again with questions of environmental stewardship when my daughter Christiana, a fifth grader, asked me, “What are we going to do about toxic waste?” I have never forgotten her question, or the Bible story about seeing as a child sees. I firmly believe that education is the most important factor driving environmental awareness, and I’m encouraged that schools across our country are taking up the cause. Our children are learning about the condition of our planet, and they are challenging their parents for answers.

One of the first major problems to confront us at Earth Resources, way back in 1974, was the government mandate to take the lead out of gasoline, which we made from crude oil at our refinery in Memphis. If it had been just a bottom-line decision, there wouldn’t have been any discussion, because separating gasoline from lead simply cost too much. But my growing awareness of environmental issues led me to consider more important factors than simple costs. I was convinced that both profitability and sustainability had to be achievable.

Lead had once been considered a terrific modern advancement. But by the early 1970s there was evidence of lead poisoning from both leaded house paint and gasoline, and the Environmental Protection Agency decided that burning lead was to blame for releasing a lot of poisons into the air. The practice had to stop.

When we did the math, it didn’t look good. The capital investment required to meet the new gasoline-refining standards equaled our little company’s total net worth. Unleaded gasoline was being phased in, but it would cost consumers four cents more a gallon. No one knew if people would pay the extra four cents, or if they would just ride in the old cars longer and keep buying the less expensive leaded gasoline. So, more than thirty years ago, we faced the big environmental question that all entrepreneurs will eventually have to address: Are we willing to bet our businesses on getting the lead out?

Trying to guess how much more consumers were willing to pay back then for environmentally enlightened products was not easy. The thinking was that environmentally friendly products—gasoline, clean electricity, organic cotton, dolphin-free tuna fish, and so on—would always cost more to produce and therefore would always sell at a premium.

We’ve since learned that cost is not necessarily the only determining factor when it comes to conservation. The first person who decided to save dolphins that were getting caught in tuna fishing nets priced his tuna at 50 cents more a can than anyone else’s, and didn’t sell very many. Later, after he was able to narrow the price difference to a nickel, consumers responded with a huge grassroots effort to “save the dolphins.” People are willing to pay another nickel to do the right thing.

In our case, with leaded gasoline, it still wasn’t a sure thing. What would be the right decision, we asked ourselves, for our own Delta Refining Company on the banks of the Mississippi? Our Memphis facility had been producing a lot of “bottom of the barrel” products, such as asphalt. While making our new, legally required capital investment, our engineers recognized that we could change the mix in our refining process and start producing more “top of the barrel” products, like jet fuel. Jet fuel had higher profit margins, and, as another profit multiplier, we could also produce substantially more barrels per day. At a time when other refiners closed up shop rather than bet the money on new equipment, we were rewarded for investing in cleaner technology that produced greater amounts of higher-margin product. That meant that doing the right thing in this case carried an economic bonus. It was a win-win.

Those oil refineries that shut down rather than make the necessary capital investment, seeing only the dangers of change and its initial costs, became progressively more negative, created self-fulfilling prophecies of doom, gloom, and failure. Perceive dead ends and you’ll find what you perceive. That’s why entrepreneurs are by nature optimists.

Fast-forward three decades and, today, everyone knows that cars create air pollution. Most people do not know, however, that the greatest source of industrial pollution comes from the making of electricity. It accounts for the majority of three major pollutants: 85 percent of nitrogen oxide, which contributes to smog; 97 percent of sulfur dioxide, which contributes to acid rain; and 99 percent of mercury, which is associated with many health problems.

For seventy years, the electricity monopolies in this country had a free ride. This has allowed dirty old coal plants to pump pollution into the air without factoring the environmental damage they do into the cost of doing business. In my mind, this is trespassing on the rights to clean air of all the rest of us who live on this small planet.

And that is why, in 1997, I decided to get to work and become a major investor in the clean-air revolution. I began what would become a $150 million investment in a little company called Green Mountain Energy, whose slogan is, “Choose wisely. It’s a small planet.”

The fundamental concept that brought me to this conviction is an inescapable fact of human behavior, known as “the tragedy of the Commons.”

Over two thousand years ago, Aristotle observed, “That which is common to the greatest number has the least care bestowed upon it.” The tragedy of the Commons is, simply, that free access and unrestricted demand create abuse. The classic example is a spot of “common” ground owned by the villagers, each of whom has a cow grazing there. Because it is free, one person decides that instead of one cow, he can graze two and then three cows. When he does, everyone else brings more cows to the Commons, and before long there’s no grass left for any of them.

The same is happening to our air and water. It’s a Commons. There is no charge to use it. There is no ownership. Our market system is based on the idea that somebody owns something, but the Commons is outside the market system.

Consider the amounts of carbon dioxide that we are throwing into our air and atmosphere. Over 70 million tons a day. That is unsustainable. Our small planet cannot cope with this much poisonous gas for much longer.

Al Gore’s An Inconvenient Truth, and Leonardo DiCaprio’s The 11th Hour speak the truth. Gore has played a valuable part for over thirty years in educating the public, but his film sells more fear than hope and solutions. Leonardo’s lesser known film is one-third diagnosis of the ailment and two-thirds treatment. I like the hope, the solutions, and the answers. Our company motto at IBM was, “Answers are our products.”

Our recent presidents and Congress have been hiding behind a false economic argument, saying that protecting the environment is going to hurt the economy. They got it wrong. I’ve grown convinced that moving toward a carbon-free economy will create good jobs and stimulate economic growth. Entrepreneurs—green entrepreneurs—will lead the charge and find ways to get clean air and water. Their investment in technology will result in economic growth.

It will take not only political consensus but also politicians’ courage to put tough caps on emissions—to limit the number of cows that can graze on the Commons. Some European countries have already taken action. Somehow we in America have to come from behind and lead by example and persuasion, to get all the nations of the world to negotiate emissions caps for coal plants, cars, and planes. With only 5 percent of the world’s population, America produces 30 percent of its pollution, and yet it still has not signed up for this mission.

Read about Sam Wyly's carbon consumption tax and tariff, the story of Green Mountain Energy, and green solutions to the current economic crisis in "1,000 Dollars and an Idea." Buy the book.

Copyright © 2008, 2009 Sam Wyly