“This Is Not Charity”

How Bill Clinton, Ira Magaziner, and a team of management consultants are creating new markets, reinventing philanthropy—and trying to save the world
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The climate initiative had to race the calendar. In mid-May, the group of cities was to hold its second climate summit, in New York. Magaziner was determined to have at least one deal ready for Clinton to announce there. Foundation people fanned out to meet with hybrid-engine makers, lightbulb manufacturers, green-building contractors, waste- and water-treatment companies, bankers, and more.

To understand better what these foundation people do, I spent some time with Nisha Thirumurthy. She is 30, with a cheerful, round face, dark hair parted in the middle, and a vivacious, unpretentious manner. Born in Chennai, India, she moved to the United States at age 11. After college, she wanted to do international development work, but internships with nonprofits left her disappointed. “I felt I was doing the work, and I just never knew what happened with it,” she told me. “If you really want to make a difference on a large scale, you have to get the private sector involved.”

In January, Crolius brought Thirumurthy, by then an energy consultant, into the climate initiative, to focus on the market for alternative-fuel vehicles. Her first account was UTC Power, a Connecticut-based company that makes, among other things, fuel cells for cars and buses. Fuel cells run on hydrogen instead of petroleum and emit only water as waste. Depending on how the hydrogen to power them is produced, they have a promising future as a green alternative to the internal-combustion engine.

But that future, touted for decades, keeps receding. There is no market for fuel-cell vehicles because they are expensive; they are expensive because there is no market for them. “It’s the chicken-and-the-egg thing,” UTC Power’s Michael Brown told me recently. “You’re sort of lost in this loop, and you’ve got to figure some way to break it.” Since 2005, the company has sold only six fuel-cell-powered buses, each made by hand, each priced at more than $2 million. When I asked Brown if UTC Power was making any money on these boutique buses, he replied, “Not enough to make us happy. Frankly, nobody’s making money on fuel-cell buses.” That could change if larger, regular orders began coming in. If it made 100 or so buses a year, UTC Power could deliver them at competitive prices, Brown said.

Thirumurthy and several colleagues visited company plants and brought back reams of cost data. She used it exactly as a private consultant might: to work out, component by component, where higher volumes could most effectively reduce costs. By early June, UTC Power and the Clinton Foundation had a deal: If the foundation could round up the orders, the company could cut costs and pass through the savings. In August, Magaziner said he expected cities to order enough buses—something in the hundreds—to reduce prices by half or more.

Would a few hundred fuel-cell buses matter, if cities bought them? Maybe only a little, but maybe quite a bit. If prices came down, order books might fatten, bringing prices down further, attracting new investment and still more orders, and perhaps speeding the adoption of fuel-cell technology in the broader market. And if not? Magaziner had other irons in the fire. He intended to push ahead on multiple fronts, creating a stream of “products” and letting the market decide the rest.

Another product, for example, involved buildings, not buses. Buildings are among the most profligate energy-wasters out there. For a fee, energy-service companies will upgrade your building to plug energy leaks, promising to deliver a specified level of conservation and to reimburse you for any underperformance; you can take this guarantee of future energy savings to the bank and borrow against it to finance the upgrade. The business model is elegant; but the market for these building retrofits, as they are called, remains small, only a few billion dollars a year. Low volumes keep costs high: another version of the fuel-cell problem.

The foundation made retrofits a target last year and brought in Milton Bevington to work on them. In his mid-50s, with a 30-year business career and training as an HVAC engineer, Bevington was an empty-nester who was casting about for a new direction and was willing to take a steep pay cut. He found energy-service companies that were eager to participate. Meanwhile, the foundation negotiated with bankers and canvassed cities.

At the cities’ climate summit in May, Clinton, flanked by the mayors of New York and London and a herd of bank and energy-service-company executives, announced the result: Cities would put together bundles of buildings to retrofit; the banks would make available $5 billion in loans, to be paid back from future energy savings. The $5 billion, the companies say, will more than double the size of their retrofit market at a stroke. More important, as Clay Nesler, of Johnson Controls (an energy-service company), told me, working with a predictable stream of demand instead of doing scattered jobs “is a new way of doing business,” one that promises new economies of scale, although how much prices will come down remains to be seen.

Clinton and Magaziner intended the May announcement merely as an opening shot. The campaign, if it succeeds, will go on for years, the script improvised as opportunities crop up. “I want to start with the low-hanging fruit,” Clinton told me. “I have no idea where this is going, but it’s utterly fascinating to see if it can be done.”

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Jonathan Rauch is a contributing editor of The Atlantic and National Journal and a senior fellow at the Brookings Institution.

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