Bill Gates On Clean Energy, Donald Trump, And Stocks (Full Interview) — Squawk Box — CNBC

[00:00:00] Speaker 1: We are here this morning with Bill Gates, who is the co-founder of Microsoft and the co-chair of the Bill and Melinda Gates Foundation. He is also the chair of Breakthrough Energy Ventures. That is a new billion-dollar fund that is looking at finding innovative ways to change energy and really combat climate change. And, Bill, I want to thank you very much for being here today. First of all, a billion-dollar fund is a big deal. This is an area that you've been talking a lot and writing a lot and focusing on a lot for quite a long time. But this is a different deal where people are actually investing their own money to do this. How did you all come together, and what's the goal of this fund? [00:00:36] Bill Gates: Well, it started a year ago where I went to the November climate talks and had two groups that came together, 20 governments, including all the big ones, committed to double their energy R&D. So that's the basic research piece. And I, in a group we call the Breakthrough Energy Coalition, said that we, as private investors, would take the good things that came out of that. And even though it's high risk, we'd go through and build companies out of that with a goal of making energy both cheaper but also completely clean. And so with the right innovation, if clean energy is actually cheaper than dirty energy, then even a country like India, that needs to build their energy infrastructure at very low cost, it'll be obvious to them what they should do. And as long as there's a premium, they're going to be reluctant to go that way. So innovation is the key to solving this problem. [00:01:36] Speaker 1: You have a very long time frame with this. You and your investor partners are willing to wait 20 years to see returns on that. And this has been an area that's been really risky for investors, places where they haven't made a lot of money. I think if you looked at all these funds overall, it's been very difficult to do that. And one of the biggest roadblocks has been cheap fossil fuels, something that we continue to see. What makes you think that as we continue to see technology working on getting cheaper fossil fuels, that we won't continue to have that problem? And how big of an issue is that? [00:02:07] Bill Gates: We want to be cheaper than coal or gasoline for transport. And so that bar is particularly low right now. But there are a lot of paths that make us feel confident we can get there because we have five or six paths. We'll have several companies in each path. The goal is to be even cheaper than those things are. And science is always kind of amazing. It's not good to underestimate innovation. And plus the team of people we have, we've looked at the early clean tech investors. We have John Doerr, Vinod Coleslu, who actually did quite well. But we've learned that we need a longer time frame. So that's why we're 15 to 20 years. We need more money. We need a lot of partners like companies in the energy business like Southern and Total. We need institutions like University of California that both bring their science and will come in at different stage of financing. So we've taken everything that was suggested about how to make this era even more successful than the last. [00:03:18] Speaker 1: When you talk about the different pathways, you mean solar or nuclear or wind power, all these different ways of looking at it. If you had to guess, what do you think is the most likely path for the best alternative energy solution? [00:03:32] Bill Gates: Well, I'll quickly give four paths. One path would be what most people probably expect is to reduce the price of solar and wind, deploy it, put it on an incredible grid that connects the entire continent, and then have some huge storage capability. Now, that storage would be over 100 times better than anything that exists today. And so it may not exist, but that would be a path. Another path would be to do that but to have natural gas peakers that come in when the renewables aren't working and have some carbon sequestration so that when you use the natural gas, even then you don't have carbon emission. Another path would be if we can take sunlight and make fuels directly. It's called solar fuels. It's in the lab today. It's almost ready for some startup companies to go and do that. That's an amazing solution because we know how to store liquid fuels. We have all the infrastructures of pipes and tanks and things. So that's kind of a standalone solution. And then for electricity, nuclear fission, obviously, have to make it way more safe, way cheaper than it is today, and likewise with nuclear fusion. And so we'll invest in all those things. We also have greenhouse gas emissions from land use, from industrial processes like steel and cement. And so if you really want to get to zero, which is what's necessary, you've got to have breakthroughs that cover all the emissions areas. [00:05:06] Speaker 1: You know, you mentioned that part of this is based on governments saying that they're going to increase their spending on research and development. And while that is something that all these governments agreed on a year ago, we're looking at different governments facing us in just about every direction. Donald Trump said over the weekend that he's not sure that anybody really knows that climate change is for real. And you can see other instances of this that are kind of in other areas of the globe, too. Are you convinced that the governments will still continue to fund all of these alternative energy sources? [00:05:39] Bill Gates: Well, the breakthrough energy ventures is going to go full speed ahead no matter what's going on with climate policy. However, I think this administration likes a good deal. And I think I and others will go to them and say that maintaining American leadership, making sure that the products that will be in demand around the world that are lower cost, that provide energy security, making sure that our labs and our private companies generating jobs are out in front on that makes energy R&D investments a very smart thing to do. It's not a huge part of the budget. And yet it can help the economy just like shale gas has in a very big way. So some climate policy things will likely change. The R&D piece has been the most bipartisan. As I've gone up to the Congress, lots of Republicans and Democrats seen that this is the unique contribution to the U.S. So we hope that the U.S. and other countries maintain and increase these energy R&D budgets. But our commitment to do this venture and find those great scientists all over the world, although most of that will end up being in the U.S., we're going full speed ahead because we see that as a necessary piece. And we see a few things that really should get a chance to create products. [00:07:08] Speaker 1: Donald Trump mentioned that he had a phone call with you. How did that conversation go? [00:07:13] Bill Gates: I had an opportunity to talk to him about innovation. A lot of his message has been about things where he sees things not as good as he'd like. But in the same way that President Kennedy talked about the space mission and got the country behind that, I think that whether it's education or stopping epidemics, other health breakthroughs, finishing polio, and in this energy space, there can be a very upbeat message that his administration is going to organize things, get rid of regulatory barriers, and have American leadership through innovation be one of the things that he gets behind. And, of course, my whole career has been along those lines, and he was interested in listening to that, and I'm sure there'll be further conversation. [00:08:04] Speaker 1: Did you know Donald Trump before? Had you had conversations with him before? [00:08:07] Bill Gates: No. You know, he and I have been in different business areas. We have a lot of common friends, but this is my first conversation with him. [00:08:15] Speaker 1: You mentioned going to Congress and talking to Republicans and Democrats there about it. I mean, the Senate last year, 49 senators voted that while they believe in climate change, they don't think man is responsible for it. And I guess that's my question. The energy R&D may be something they're open to, but why would they spend that money on some of these other areas instead of potentially fracking or finding other ways to advance fossil fuel research? [00:08:40] Bill Gates: Well, the good news is that the energy R&D budget over the last couple of years was raised over 20%. $18 billion. And that's at a time when the budget was extremely tight and getting an agreement on anything was very, very difficult. The national labs, the universities, they're all over the country, and if we don't have to import energy from other people, if we can avoid local pollution, and, you know, people are very aware that that's an issue, some of these energy R&D programs are going to get big backing. There's even some discussion that the nuclear space might get more backing now than ever before. [00:09:25] Speaker 1: Breakthrough Energy Ventures, how will you decide where to allocate the money? How do you kind of think that through? [00:09:31] Bill Gates: Well, everything we go for has to have a chance of significantly reducing climate emissions or bringing us energy that's well cheaper than what we buy today. And so we'll have a big scientific team, bigger than you would normally see in a venture capital group. We're interviewing people now. We hope three months from now to have the team in place and start doing investing. And we're willing to pick some things that are out of the mainstream. You know, even that solar fuels idea, not many people talk about that. There's more of this one straightforward path, but it requires a storage miracle to come to take place. So I'd say we'll have several dozen companies that we're going after. Even in areas like agriculture, we'll have artificial meat, where there's already some people doing some things there. So that's a big source of emissions. [00:10:26] Speaker 1: What, you mean the cows? The cows themselves? Yes, actually, yeah. [00:10:29] Bill Gates: Flatulence? That's exactly right. Methane is coming out both the front and the back. And they've tried various feed things and even vaccination. And the way that digestion takes place, it's always going to have a methane emission at a fairly high level. And if you can make meat another way, you avoid a lot of the issues about cruelty. And you should be able to make a product that costs less money. [00:11:01] Speaker 1: You know, you have some of the world's best-known investors who are investing with you. People like Jeff Bezos, Prince Al-Awaleed, Ben Talal. You've got Reid Hoffman and Richard Branson. Is this fund eventually going to open up to people who aren't gazillionaires, too? [00:11:17] Bill Gates: Well, right now, I think we've got enough money. And I like having a group that really believes in the purpose and they're willing to be patient. And Michael Bloomberg joined. We've got – it's an amazing group. We also have Hassel Plattner in Germany, Jack Ma in China, Mukesh Ambani in India. So we're trying to get a lot of diversity so that the ideas will be coming in. The best case would be in three or four years that we've actually spent this first billion. But because we're only going to look at companies that have a real chance of success and have real impact, it could take us five or six years before we get that money out. In the good news case, these people will put up more, I feel sure. And there's another group we can bring in. We're just doing the early stage piece. When you're getting to pilot plants and big deployment, that's where we'll bring in institutions and strategic partners. So there'll be a whole capital structure as these companies are successful. [00:12:25] Speaker 1: There's a lot of news that has been coming in even this morning. In fact, just a few hours ago, we saw that Rex Tillerson, the CEO of ExxonMobil, is Donald Trump's choice for Secretary of State. And you're somebody who travels around the globe constantly, not just for Microsoft, but also your work with the foundation. What do the people that you talk to think about what they've seen with the Trump election and with Rex Tillerson, potentially as Secretary of State? [00:12:54] Bill Gates: Well, I think there's a lot of fascination to see what the new directions will be. Donald Trump was elected not so much for specific policies, but because of the kind of leadership, you know, those voters wanted. So he has a lot of flexibility on which issues he really goes after. And so that's why I think a dialogue now, you know, what are the positive things for America that he's thinking, and who who can help out with that? You know, I'm coming in with a very strong innovation message, you know, hoping that in the budget priorities and the way things get staffed, we can accelerate innovation in various health areas like stopping epidemics, obviously the energy area. Even in education, I think good research can help teachers, help students. This digital age is pretty special. And whether it's streamlining government the way that private business has, or using it for these research endeavors, now is is a great time to double down on innovation. [00:14:08] Speaker 1: He's been very forward about his ideas that this is an America first administration. What he said is that the one China policy may not even stand. It may not be something that he sticks with. You have a lot of relationships with China. Terra Power, the nuclear company that you're the chairman of, has a deal to build a nuclear plant in China, not to mention all the work that you're doing there with the foundation, too. How does the one China policy play if we don't go along with that? What do you think that will mean for business relationships in China? [00:14:42] Bill Gates: Well, I don't think it'd be a good deal to have trade relations between China and the U.S. really fall apart. And so I feel sure that he and the team he brings around them, even as they try and tune things, they won't want the lose-lose that you would get if you start to get large tariff walls. There are challenges. You know, a lot of the strength of the U.S. economy comes from exporters. And, you know, so if you're trying to suppress imports, then you can get into a situation where countries are raising tariff walls. Now, the president-elect is very sophisticated. You know, I hope he's thought through how he's going to get some adjustment there without that typical sort of a tariff tip for tat. The nuclear industry is a great example. If you want a renaissance, they have to be able to sell into Asia because that's where the vast majority of those nuclear builds are. Here in the U.S., because of the low price of natural gas, the complexity of permitting, the speed of construction, nuclear is not. Even if you were factor two cheaper with a new design, nuclear is going to have a tough time competing. Whereas in China, their coal is more expensive. They build nuclear very fast. And it's not just China. It's all of Asia, which is most of the new build. So how you balance all those things, you know, that's why a really top team needs to be pulled together. [00:16:20] Speaker 1: Have you been surprised just by some of the tweets that have gone out? I mean, some of us thought he would stop using the Twitter feed quite as much as president-elect. [00:16:28] Bill Gates: Yeah, he tweets more than I do. I'm impressed. You know, I come from the tech industry and I just can't keep up. And, you know, we're moving into a new phase now. And, you know, after January 20th, things like trade policy and what are the aspirations? What are the positive aspirations where we can take some disappointment, you know, perhaps even more pronounced in his voters than the country as a whole? How do we take that once we acknowledge it and say, okay, let's deal with that? What are the steps forward? And education, health, even lower cost energy companies, some of which will be big exporters. I think all of those have got to be part of that formula. And, you know, through a dialogue, I'll get a sense of is there any way I can contribute to a strong strategy there? [00:17:30] Speaker 1: As we watch the stock market, it has certainly liked what it's seen with the Trump administration, if you look at just where stock prices have headed. As we approach Dow 20,000, do you think stocks are expensive? Well, certainly stocks are expensive. [00:17:44] Bill Gates: But it's all in relationship to the macroeconomic picture, which I'm not an expert on and I find, you know, kind of amazing that interest rates have stayed so low for so long. And now because of the way global dynamics work, the dollar is unusually strong. And so the idea of reducing our trading balance is actually harder now with the dollar having been strong because people are seeing that we're likely to be more stimulative than most other countries are. And so when do we go back to normal in terms of interest rates, multiples? There'd be a lot of adjustment there. Stocks are higher, higher because the interest rate environment. You said that back in April when we spoke with you, [00:18:39] Speaker 1: too, that if interest rates were low, then that would be the reason that stocks would continue to climb. The Federal Reserve is meeting today, the FOMC, and will decide tomorrow whether to raise rates. Most people think they will raise rates. It's still only going to be the second time in 10 years that they've done so. Just because they start raising rates, does that mean that's a reason for stocks to sell off or would it have to be a significant hike before that kind of...? Well, if you've got this [00:19:06] Bill Gates: anticipation at such high level, that's already going to be priced into stocks. It's whether the Fed starts raising interest rates in a way that people are not expecting. And you can always through, you know, the bond market kind of look and see what that expectation is of how many rate increases [00:19:23] Speaker 1: there'll be over the next... I think they're only looking for three over the next year plus. Right, [00:19:26] Bill Gates: so that's probably priced in. So if they go up to six, uh, then you would see, uh, some, [00:19:35] Speaker 1: the market come down somewhat. You know, you are an investor who is active in a lot of different arenas. Have you changed the way you look at the markets or changed anything you're doing as an investor, um, based on what we've seen with the Trump rally or based on what we've seen with interest [00:19:50] Bill Gates: rates to this point? No, I think the philosophy that, uh, Warren Buffett has, uh, put forward that if you can find great companies and invest in them, then the macroeconomics can go up and down, uh, and the basic value of what you're holding onto there, uh, will be maintained throughout that. And, uh, I have a team of people who manages, uh, that formula. They've done a really great job. Uh, so we're, you know, long-term oriented and, and don't think that we understand the macroeconomics enough that we're making bets that are specific to, um, that piece. Uh, you, you've been very active in currency [00:20:35] Speaker 1: markets in the past. Are you looking at any currencies right now? You mentioned the strong dollar, but are there other places that you look into that? Well, we have known, uh, some companies [00:20:43] Bill Gates: down in Mexico that gives us a fair bit of exposure there. Uh, right now, you know, the peso's been very, very weak. So it'll be interesting to see as the U.S.-Mexico relations, uh, get developed under this administration. Is that oversold or, uh, you know, do those, uh, those things, uh, have further down to [00:21:05] Speaker 1: go? And just one more question on the news of the day, and that's, uh, Rex Tillerson being nominated for secretary of state. Um, his relationship with Russia has been something that's been much discussed in the news over the last week or so, as it's looked like he would be getting this nomination. Um, what's your relationship with Russia? My relationship with Russia? I asked because I was reading stuff on all kinds of crazy news sources that were saying that you and Microsoft were banned by Putin. And I, these are not reliable news sources. No, no, it's true. There's the, and, um, yeah, there was a, [00:21:41] Bill Gates: uh, a statement by, uh, the Russian state at one point that not to favor our software because of some perception they had. You know, Microsoft's done the best it can to correct that. Uh, but I don't think we're completely back, uh, in their good graces, um, which is unfortunate, but I had no direct, um, connection with that. Nor do I have any particular relationship with Russia. You haven't been there lately, have you? Uh, no, I haven't been for over a decade. I did make a trip there for Microsoft, but it was a long, long time ago. Well, Mr. Gates, I want to thank you very much for [00:22:21] Speaker 1: joining us today and, uh, thank you for sharing everything that you're doing with Breakthrough Energy Ventures. We look forward to talking to you again soon. Thank you.