Fortune Brainstorm Green

Adam Lashinsky interviews Vinod Khosla. I liveblog.

VK’s four major investment areas: oil, coal, efficiency, and materials.

AL: India finance minister called biofuels a crime against humanity. What up?

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VK: Food-based ethanol isn’t the big driver of food prices. Regardless, biofuels don’t have to be food-based.

AL: But you’ve invested in food-based ethanol.

VK: Only one, Cilian (sp?), to see if we could get a big reduction. But cellulosic has moved so quickly, it’s now clear that’s the winner.

Price of oil has much larger impact on price of food that price of, say, corn. Also, a Merrill Lynch study found that absent biofuels oil prices would be 15% higher, which would have a much larger impact on food prices.

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AL: You hyped ethanol policy for years! Now you’re backing off?

VK: Mandates are crucial. We don’t have a level playing field. We need incentives, in part to get past food-based ethanol.

AL: The government has truly screwed up ethanol policy. Do you agree?

VK: No, I don’t. The Time article was bunk. There was good and bad in the policy, but in the end it’s about replacing oil. The key is to spur development of technology. Cellulosic used to be 10 years away; now it’s five; I think it’s two. In two to three years, we’ll have production proof that there are multiple ways of doing ethanol that are cheaper than oil.

By 2030, oil will be down to $35/bbl, because of renewables. Green will cost less than fossil.

AL: You said you agree with Lomborg? Explain.

VK: Some stuff. We need economic arguments. Too many feel-good solutions, like hybridization of cars, which is the most expensive way of reducing CO2. Batteries are not on a declining cost curve — we’ll need quantum jumps. Putting solar panels on houses in San Francisco, a foggy city, with taxpayer money? Silly.

We’ve got to be cost-competitive with fossil fuels. There just no way hybrids are going to scale large in the next decade.

AL: Have you had any exits in your renewables?

VK: Nothing of consequence. Most investments take 5-7 years.

If I’m wrong in my assumptions, I lose my own money. How many pundits can say the same thing?

AL: You’re going to make lots of money.

VK: That’s the plan! Sometimes there are investments we move outside, into a philanthropic fund, when it’s something I want to do that doesn’t pencil out.

AL: What are you most optimistic about?

VK: People’s view of green is obsolete. Solar cells on roofs, wind power, corn ethanol. It’s about mainstream businesses, mainstream infrastructure. We’re working on engines, lighting, desalination, cement.

I don’t worry about IPOs. It depends more on the markets. If markets are good, we could take several companies public very soon.

AL: Is clean coal an oxymoron.

VK: Solar thermal and advanced geothermal are becoming cost-competitive; coal is too risky for anyone. We are looking for unusual sequestration technologies. [Hmmm …]

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