Vinod Khosla and the Invisible Hand

On Monday, October 15, 2007, I saw the invisible hand at Dartmouth College.

Vinod Khosla, a founder of Sun Microsystems and now a venture capitalist focused on renewable energy, gave a talk to Tuck and Thayer students and faculty. It was truly amazing. Khosla laid out his vision of how the world was going to transition away from a petroleum and coal-based energy economy to one that would rely on renewable, low-carbon emitting forms of energy. But more than just the vision, Khosla is part of the invisible hand of market economics, of what I recall so fondly from graduate school as “price theory.” Khosla is playing a fundamental role in bringing together the scientists, entrepreneurs, professional managers, and investors that are needed to form the organizations that will provide us our energy needs of tomorrow.

But the most important part of his talk was his incredible optimism, his beliefs in the power of science, entrepreneurship, and markets. He described some of the truly amazing technologies that he is funding, from designer cells that focus all their internal mechanisms on producing butane, to “sub-critical” nuclear reactors, to cellulosic ethanol, to significant improvements to the mundane old internal combustion engine.

Throughout it all, he focused on the pragmatic, and the scalable. He will invest in projects that may not become huge, but primarily he wants to develop sources of energy that can supplant significant amounts of petroleum and coal. I may disagree with his views on climate change (see my other post of today) but I don’t disagree that we do have to transition away, gradually, from petroleum and coal.

It was wonderful when he dismissed an engineer’s criticism of biomass energy on the basis of thermal efficiency. I have always thought that engineers focus way too much on process efficiency, in regard to what percent of some input source (e.g., wattage from the sun) is transformed to the final product. What really matters is the economic efficiency of the process – dollar value of inputs vs. dollar value of outputs. BTUs are not all the same – BTUs in the form of sunshine are not all that useful in economic life, but BTUs in the form of gasoline are valuable.

I left feeling invigorated, and confident that if our politicians do not restrict our freedoms too much, there is little that we cannot accomplish. Certainly my confidence in thinking that my children will be able to enjoy even better forms of heating and cooling, lighting, and transportation was tremendously enhanced.