(co-authored with Dan Saccardi, Associate)
Some companies are betting big that the new Prize -- in terms of sheer billions in wealth available for the taking -- is to be found in the natural gas shales found the world over. That certainly seems sensible if you view the world from the perspective dominant in industry when Daniel Yergin published his seminal book The Prize -- especially with the mounting consensus about Peak Oil, on which even the International Energy Agency now agrees.
But the greater Prize, if you're looking for total value creation potential by companies and for society, is environmental innovation -- for low-carbon energy generation, electric and hybrid vehicles, energy efficiency, and other clean technologies. This is even starting to show in the size of deals done by major energy companies in building their reserves for growth -- even ten years ago, a hundred million dollars was a huge deal in cleantech. This year, we saw deals such as Shell and Cosan's $12 billion joint venture. That stacks up with any of the big unconventional gas deals done in the U.S. this year, such as Chevron's entry in the space with its proposed acquisition of Atlas last week.
So how do you capture the environmental innovation prize? It's a lot harder than just "drill, baby, drill." It involves digging into new areas of science and unproven technologies. It involves even tougher challenges such as combining bundles of disparate technology -- like what you see in an electric car -- and even developing entirely new business models -- like the commercial buildings energy efficiency model that Duke Energy and Cisco are gearing up in Envision: Charlotte. Perhaps hardest of all, it involves bringing together diverse fields unaccustomed to how one another operates.
Ironically, one of the best ways to grab the new prize of environmental innovation is ... a Prize. Today, GE announces the next round of winners of its Ecomagination Challenge. This is the latest in a year with many notable prize announcements related to environmental sustainability in the U.S. and abroad -- the Transportation X-Prize, the White House National STEM Video Game Challenge to advance science and technology education, the TED Prize awarded to Sylvia Earle and Mission Blue.
Why's a prize a great path to this Prize? There is extensive literature about how prizes work, from an economist's view. As X-Prize leader Peter Diamandis writes, because many entrants compete, their cumulative investment is many times the prize(s) awarded. X-PRIZE argues that an incentive prize stimulates 10-50x return on the prize, and at least 100x subsequent investment in social benefit.
Take GE's Ecomagination Challenge as an example. It brings together some of the greatest investors in the space, and the best minds in academia and business, with a company that has bet significantly on building growth platforms to crack the enormous challenge -- to "create a cleaner, more efficient and economically viable grid, and accelerate the adoption of smart grid technologies." And more than an exercise in ingenuity, GE has the ability to take a good idea to commercial viability in 2-3 years, versus the 7-10 year pathway from laboratory to market that most technologies face.
Designed well, prizes lure inventors out from their garages and guide them to combine their ideas with others needed to form complete business models. Prizes increase the "gene pool" of ideas, attracting people from all walks of life, rather than just the scientific community. According to a study from the Harvard Business School, opening up the core problem to a large group of outside problem solvers is an effective way to solve scientific problems: "The approach solved one-third of a sample of problems that large and well-known R & D-intensive firms had been unsuccessful in solving internally."
Companies also discover innovative people through these competitions. At the awarding of the X-Prize for Transportation this year in Washington, one GM veteran pointed out that the company has found many people for Chevy Volt Team in this way. Tom Kalil discussed this crucial human capital development goal in his recent NPR Science Friday interview, explaining why the White House is looking to prizes as a key to uncovering new potential for the U.S. economy.
From the legend of the Gordian Knot to the 1714 British parliament navigation prize, there are examples throughout history and mythology of the prize concept put to practice successfully. At the most basic level, prizes tap the human urge to compete, to solve clear problems for which there is no certain solution, and to gain recognition. Today, part of the magic is creating the real potential for crossing the chasm... taking inventions quickly from the inventor's lab -- or garage -- to scale in the marketplace. In a world needing to innovate its way out of tough environmental problems in a hurry, and an economy in which oil and gas are facing increasing limits and constraints, the Prize takes on new meaning.