By Geoffrey Smith and Alan Murray
May 18, 2016

I’m leaving San Diego this morning, after two days at Fortune Brainstorm E, feeling oddly both more optimistic and more pessimistic about the world’s energy and environmental challenges. The conversations here are difficult to summarize in three hundred words, but investor Jeremy Grantham captured the spirit when he said environmentalists “all underestimate, either by a little or a lot, how fast technology is moving” to solve key energy issues, while the tech crowd “underestimates the speed at which weather, population, climate are moving against us.”

 

First, four reasons to feel good about where we are headed:

 

  • Renewable energy – particularly wind and solar – continue to grow at remarkable rates. PG & E CEO Anthony Earley said he expects California to easily meet its goal of 50% renewable energy by 2030.

 

 

 

  • A bevy of brilliant entrepreneurs are busily at work on creative solutions to remaining energy problems, ranging from energy storage to removing carbon from the atmosphere.

 

But three reasons for pessimism:

 

  • Emerging markets, including India and Africa, will continue to need ever more fossil fuel – and in particular dirty coal – to meet the demands of rapidly growing populations.

 

 

 

The bottom line: humanity is in, as Grantham put it, “the race of our lives.” Let’s hope we win.

 

More news below.

 

Alan Murray
@alansmurray
alan.murray@fortune.com

 

 

 

 

 


Top News

•  Honey, I’m Google Home

Google is set to tell the world about its entry into the voice-activated home device market at its annual developer conference later today, according to the New York Times. The virtual agent is due to hit the market in the fall. It will build on the technology behind ‘Okay, Google’, the voice-activated assistant that runs on Android mobile phones. So far, few details have leaked about what ‘Google Home’ will actually do (the NYT suggested it will answer simple questions and carry out ‘basic tasks’). The new product should put its maker in a better position to compete with Amazon’s Echo, which is starting to encroach on Google’s core business of searches for products and services. 
NYT

•  Another Legal Blow to the ACA

Highmark Inc, the insurance arm of Pittsburgh-based non-profit Highmark Health, is suing the federal government for allegedly not meeting its obligations under the Affordable Care Act. It’s the third high-profile piece of news related to the ACA in the last couple of weeks, after a federal court ruled that the Obama administration infringed Congress’s rights over appropriations, and the Supreme Court refused to validate provisions requiring the coverage of contraception. Highmark says it’s owed $223 million under an ACA program known as ‘risk corridors’, which aims to limit the financial risks carried by insurers under the new system. Highmark lost some $85 million last year, largely due to losses on is ACA-plan business, according to The Wall Street Journal. The federal Department of Health and Human Services announced last fall that insurers initially would receive only 12.6% of the money they claimed under the risk-corridor program for 2014, its first year of operation. Highmark is seeking the full amount it says is due. 
WSJ, subscription required

•  Sanders’ Kernel of Comfort in Kentucky

Bernie Sanders won the Democratic primary in Oregon yesterday and came within a whisker of taking Kentucky from Hillary Clinton. The results don’t do much to change the likely outcome of the Democrats’ upcoming convention: Sanders really needed to win both states to sustain any sort of hope. Clinton enjoys an almost unassailable lead in delegates, and the demographic factors in the states that are still to hold their primaries favor her rather than him. But that doesn’t mean that Sanders has become an irrelevance. The longer his campaign continues, the longer it can generate the kind of negative publicity for the party that it did at Nevada over the weekend, and the longer it keeps Clinton further away from the center ground where she would rather be. As recent polls have shown, that creates a vacuum that even Donald Trump can exploit. 
Fortune

•  Trump Takes Aim at Dodd-Frank

Meanwhile, the GOP’s presumptive nominee has said he’ll come “close to dismantling” Dodd-Frank, the comprehensive banking reform bill made by the Obama administration in the wake of the 2008 financial crisis, if elected. Trump told Reuters in an interview that the bill “has made it impossible for bankers to function.” With bank lending having grown by around 7% in both of the last two years, we’d contest that claim. It’s also hard to square with Currency Comptroller Thomas Curry’s argument earlier this week that real estate markets were starting to look frothy. Dodd-Frank has certainly restricted some activity: volatility in financial markets now seems structurally higher due to the withdrawal of many banks from market-making (a factor that, ceteris paribus, raises the price of debt finance for real estate developers). So it’s true Wall Street may have had a less wretched first quarter without Dodd-Frank, but it’s still a big logical and political leap to dismantle what is supposed to stop Trump’s core voters ever having to pay for another TARP.
Fortune

 

 



Around the Water Cooler

 Obama’s Overtime Rule

The Obama administration on Tuesday unveiled the final version of a long-awaited rule to extend overtime pay to 4.2 million U.S. workers, completing one of its most significant moves to address stagnant wages. The rule, which has drawn intense criticism from business groups and Republicans, doubles the maximum annual income a salaried worker can earn and still be automatically eligible for overtime pay from $23,660 to $47,476. It takes effect Dec. 1 and requires the threshold to be updated every three years. Officials said workers will earn an estimated total of $12 billion more over the next decade, while others will work fewer hours for the same pay. The rule will likely touch nearly every sector of the U.S. economy but is expected to have the greatest impact on nonprofit groups, retail companies, hotels and restaurants, which have many management workers whose salaries are below the new threshold. Republicans in Congress have said they will challenge the ruling, but would need to overcome a presidential veto. 
Fortune

A Doping Storm Brews Ahead of Rio

The Olympic Games are almost sure to be overshadowed by a major doping scandal. The International Olympic Committee said yesterday up to 31 athletes from 12 different countries in six separate sports could be banned from the Rio games after it retested 454 doping samples from the 2008 Beijing games. More names could be blacklisted when the results of 250 retests from the 2012 games in London come in. The IOC’s latest tests used methods that weren’t available at the time to detect banned substances. The scale and breadth of the doping problem is a huge threat to the commercial value of world sport’s most recognizable brand. The issue with the IOC, as with its recurring corruption scandals, is whether it has the stomach for the political fights with countries that have sponsored or connived at doping over the years.
BBC

 

That Wave of Outward-Bound Chinese Money 

Another day, another multi-billion cross-border acquisition by a Chinese company. Midea Group, a home appliance maker, wants to buy a Kuka AG, a German company that makes industrial robots, in a deal that values the target at over $5 billion. China Inc. has already spent more this year on buying foreign companies ($111 billion, according to Dealogic) than it did in the whole of 2015, which itself was a new record. A straight extrapolation (always a risky assumption, but still) would take you to over $230 billion in foreign M&A this year. The price offered is eye-popping: 59% above Kuka’s market value and an implicit 38 times this year’s earnings. That says a lot about how China’s manufacturers view their long-term labor cost risks. But the deal may struggle to get regulatory approval: Kuka is a supplier to, among others, Northrop Grumman, which may put it on the radar screen of the Treasury’s Committee on Foreign Investment in the U.S.. The CFIUS scuppered Philips’ efforts to sell its LED business to a Chinese group last year.
WSJ. subscription required

Suzuki Too

Suzuki’s shares have fallen 14% in Japan today after it admitted that it, too, had used illegal methods to measure its vehicles’ fuel economy.  But it said the method it used didn’t exaggerate the claims it subsequently made to customers and regulators. That ought to mitigate its legal risk, assuming that the company isn’t exaggerating now. Elsewhere, Mitsubishi Motors said chief operating officer Tetsuro Aikawa and executive VP Ryugo Nakao will step down in June, in the wake of its own fuel testing scandal. Mitsubishi’s chairman and CEO, Osamu Masuko, is staying with the company, at least while its relationship with new shareholder Nissan beds down.  
WSJ, subscription required

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