... The deal in Texas, you could argue that there's a lot of money to be made in good environmental, sound environmental judgment. Would you disagree with that?

I believe that this investment that we're doing is going to be green in both senses of the word. We wouldn't be doing it if we didn't believe it was going to be good for our own investors. But it's also a good green investment from the point of view of the climate and the environment, and that's the ideal win-win. ...

Tell me how it came to be that you called Fred Krupp of Environmental Defense. What led up to that phone call?

I had a history with Fred Krupp and with Environmental Defense, and they have a history of negotiating deals, of looking for win-win opportunities with business. I had dealt with him when I was administrator of EPA [Environmental Protection Agency] on the Clean Air Act. ...

And what led you to make that call in the first place? Why was it that you wanted to begin negotiations with environmentalists in Texas?

I think that anybody who is contemplating an energy investment now, particularly one that involves coal as this would -- even though we were reducing the number of coal-fired plants from 11 to three, or prepared to -- has to be sensitive to the fact that we were about to enter, if we haven't already, a new era, an era of sensitivity to climate and the need to reduce our carbon footprint on the planet and be sensitive also to all of the stakeholders involved.

You may know that TXU was a very controversial company. I learned how controversial when I talked to Dave Hawkins, [director of the Climate Center] of the National Resources Defense Council [NRDC]. He said -- this is before he even knew that I was going to propose this understanding with the environmentalists -- he said: "Look at the expansion plan the company has. It's the Mein Kampf of the climate wars." I remember thinking, "Wow, this is going to be tougher than I had thought."

But of course, they saw a tremendous advantage in the company redirecting its priorities, committing to windpower -- would be the largest purchaser of windpower in the country -- and to major investments in efficiency, and we did, too. I think it's a win-win.

On the environmental side, it was a pretty powerful coalition. You had mayors of 30 cities; you had attorneys who were working pro bono. As the company looked out to see all of this, have you ever seen such opposition to coal-fired plants?

I don't think that I have ever seen such concerted opposition, both in Washington and in Texas, to expansion plans of an energy company, particularly in a high economic-growth and electricity-growth region. The company, in all fairness, was trying to meet projected demands, and obviously, that's one of their first obligations.

There are three stakeholders, essentially: There are the ratepayers, the shareholders and the broader community of concern. They were, I think, bending over backwards to ensure adequate supplies. We concluded that it would be possible with much more efficiency, much more wind, to redirect the company and change the priority. ...

When you meet those who were against the [original] TXU plan, you find ranchers -- very conservative, good-old-boy Texans -- and they know their global warming. It's very interesting to talk to them. Were you surprised when you went into these negotiations [by] exactly how much people did know? ...

The public reaction on global warming was certainly present in Texas, but a much larger concern, according to all of the polling data that we reviewed, was a concern about rates. That is what really stoked a lot of passion and anti-TXU feeling among most Texans and the legislators; that's what we're hearing from other members of the Congress who are concerned about this. ...

When you first started those conversations with Fred Krupp, was he a tough bargainer?

... I would say that the measure of the negotiations is how long it took. It basically required from 8:00 in the morning until about 1:00 the following morning after we had initially exposed our two positions. ...

Seventeen hours is a long time. Where were the hurdles? What took so long?

A lot of people have asked me, "What were the positions that the environmentalists had that they did not win on?," and I've thought that's not for me to say. I'll stick with the deal that we agreed on. If they want to talk about other things that they had wanted that they didn't get, that's really for them to say.

But there must have been some arguments. Was it over CEO compensation? Was it $400 million for more efficiency in Texas?

We talked at one point about the role that offsets might play in ameliorating our carbon dioxide impact to help us get back to the 1990 level, and the environmentalists had very specific ideas about the kinds of offsets that should be acceptable. Industrial offsets were added at the initiative of NRDC.

The issue of committing to USCAP -- to actually have a Texas company join the U.S. Climate Action Partnership -- was very important to the environmentalists. The support for a cap-and-trade [program] nationally, I don't know that we had considered it that essential to a Texas deal when we went into the negotiations, but seeing how much it mattered to them, we did in fact commit to that, too. So they certainly brought a fair amount to the table and a great deal of understanding and knowledge about specifics. ...

What did you finally agree to?

We finally agreed to reduce the proposed expansion from 11 new units to three, three coal-fired units on which, substantially, a lot of work has been done; to commit to $400 million of energy efficiency, and that is making compact fluorescent light bulbs available to people and having smart meters and doing other things that would get the growth rate -- which is very high, 2.5 percent growth rate in that region -- get it down so where you would not need those other plants.

We agreed to return the carbon dioxide emissions from the entire company back to 1990 levels, even accommodating the growth by the year 2020. And we agreed to ... commit to the U.S. Climate Action Partnership, which involves a number of companies and environmental groups supporting a national cap-and-trade program to regulate carbon dioxide emissions.

And I've read that that CEO's compensation is linked to progress on those fronts.

It will be a part of the program to design a compensation equation that rewards achievement of environmental goals. I'm not sure that's been done before, certainly at a major energy company. That will be my job on the new board, apparently. ...

Was sequestration part of the talks? Did you consider that that was the technology you really should be after?

There is a perception that IGCC [Integrated Gasification Combined Cycle], the famous gasification technology, does sequester coal. It doesn't. It renders CO2 more easy to sequester, but as of now, there is no sequestration technology. And environmentalists who are involved in the energy [industry] know that. So no one was pressing us to commit to sequestration. People were pressing us to commit to some kind of technology, gasification, that would make it more possible to sequester.

One advantage that you have in Texas is you have a lot of old oil wells where you could put the CO2, and because they've been using CO2 for enhanced oil recovery [pumping CO2 into nearly empty wells to force the remaining oil to the surface], you can actually transport in pipelines the CO2. I think there's only one other part of the country which has that. So we hope, down the road, that this will be a much more economically realistic and nearer-term intervention than it might be elsewhere in the country.

But did you commit to transfer to that technology when it does become available?

... We committed that, if we could get economically realistic technology made available to us that would provide for gasification, we would buy those plants. Those commitments have since been concretized in request for proposals [RFPs] from the technology providers, from Siemens and GE and the others, Mitsubishi. ...

And this idea of the $400 million to actually begin a program of efficiency in Texas -- which is kind of amazing that they don't have much of one -- could you actually reduce demand enough that you don't really have to build those [other plants]?

The objective has got to be to reduce the effective growth rate from 2.5 percent to something above 1.5. Maybe it's 2.3 down to 1.7, something in that range. Not impossible -- it's been done in California -- but serious and daunting. ...

The numbers from Environmental Defense are daunting about how much carbon would have been put in the air. Texas is already putting more carbon in the air than any other state. What do you think about reducing that number?

Reducing the number of new coal-fired units in Texas from 11 to three, which is what we're proposing to do, will avert 55 million tons of CO2 every year from going into the atmosphere. ...

What's the significance of this deal? It is unprecedented, certainly, but is this some new model?

Well, I would hesitate to characterize it as a new model until it really plays out and we see how successful we are. But certainly it has been described by the environmentalists as a game changer, and based upon the calls I'm getting from other energy companies, I think it may be. There is a sense now that the most aggressive expansion program for coal-fired power has been reconsidered; it has been moderated. And we're going to have a much more careful and responsible attention to climate change going forward. That has to affect industry as a whole. ...

What stops other companies in Texas from making a proposal to build seven new plants?

Nothing. In Texas, which is a deregulated electricity market, anyone can compete with TXU. That's the world in which we live. ...

One of the things that the governor [Rick Perry] said -- and it was the reason he said he wanted to fast-track them -- is by 2008, Texas was going to need more energy, and this plan reduces the number of plants to three. So it raises the question: How is Texas going meet what the governor said was their needs?

What the investor group has committed to, I think, is something that will buy time. According to our analysis, the need for significant new power is some years away. During that time we will be able to implement the efficiency incentives that should make a huge difference in modulating the growth rate. ...

Some of the biggest names in American finance are part of this deal: Morgan Stanley, Lehman Brothers, Citigroup. Is this because they have a policy on environment, or because this was a very good deal?

Well, I don't know that some of them do have policies on the environment, and some are becoming, I think, much more sensitive to the environment. Certainly the presence of KKR [leveraged buyout specialist Kohlberg Kravis Roberts & Co.] and Texas Pacific Group in the lead would have inspired confidence. These [banks] are institutions that are often part of deals that these two entities do. I think their sense that we know what we're doing is probably important to their coming aboard. I think also, as some made clear to me, they really like the new green perspective on energy investments. They want to be part of something exciting.

There was a quote that "We don't want to be on the wrong side of history" when talking about the TXU deal. What does that mean?

... That was my quote. Essentially we are looking at what scientists tell us is a planetary challenge of enormous magnitude. Anybody involved in business, particularly in energy, particularly with respect to coal, has to be sensitive to that. We are. ...

When the story first broke, it was very exciting to watch it, but when you really thought about it, you still were going to have three coal plants. And there's somewhere -- you can debate the numbers -- between 60 and 150 plants that are going up around the country. So in the scheme of things, how much difference does it make in terms of global warming? ...

You know, I was asked by one senator we briefed in Washington: "What does this say to China, Bill? How can we say to the Chinese that you're building at the rate of 1,000 megawatts a week, more than that, of coal-fired power, and we really want that to come down, and we would like that carbon dioxide [to] be captured?"

I think it says, essentially, we're trying to be as careful and responsible as we can in accommodating energy-growth needs in the United States, certainly in the market that is served by TXU. We have not found a way yet to do that without coal. We hope to render it much more innocuous with gasification down the road, and the company is committed to do that. ... You make progress, but what you do isn't perfect, even if it's very good.

Does [this deal] put pressure on other companies who are planning to open electricity plants fired by coal that aren't gasification? ...

Well, I know that, from the point of view of the environmentalists, certainly those involved in this deal, they are intending to use this as an illustration to many companies that they're also concerned about expansion plans elsewhere, to try to get responsible attention to new technologies, to reduction of the amount of coal-fired power that is done, certainly without gasification.

I think what this has also done is accelerated the drive to improve their cost-effectiveness, improve their technological effectiveness. I can think of several energy companies who have actually talked to me about different technologies, not just the best known one, IGCC, but some others as well. ...

There have been people that look at this deal and say that it's likely it will speed up the transition to a cap-and-trade system. Can you explain what a cap-and-trade system is?

Well, a cap-and-trade system says, essentially, you impose a total limit on the amount of carbon dioxide that will be permitted, but then within that limit, you allow those who are emitting carbon dioxide to get the most cost-effective solutions possible, and if necessary to buy reductions from another company that's gotten them more cheaply while it continues to emit CO2 itself, all within this overall cap.

That's what we did for sulfur dioxide when we addressed acid rain in the first Bush administration. It has proved hugely successful, more successful even than I, who was a principal proponent, expected it to be. And it's the model that's embraced in the Kyoto Protocol.

And so what does it mean to put a price on carbon? How will that change our lives?

Well, once the calculation is made that carbon has a cost, it will all of the sudden begin to influence investment decisions. People will try to avoid the cost. They'll try to look for different ways to achieve similar results that do not have the adverse impact on the climate. It will change everything.

Really? It will change everything?

Having a price set on carbon will change everything. It will cause calculations by everybody who invests in energy to be made differently.

And do you think we need one now?

Oh, we definitely need one. ... The vast preponderance of scientific opinion is that we have a very serious problem and that humans are contributing to it.

In your mind, does the federal government have to take the lead in putting that price on carbon?

Eventually, we will not have an efficient solution to the carbon problem without the federal government establishing a uniform national policy. For the moment, we are doing what we've always done with respect to environmental laws: We're having different laws start in different states -- different ambitions, different expectations, different standards. That has two advantages. One, it gives us an example of what works and also what doesn't work when we finally want to craft a national solution. Get ready for that. Two, it drives those most affected -- multinational corporations -- completely crazy to have to conform to all of these rules, and typically they will come out and finally call for a national approach to the problem.

Which they are now.

That's exactly what is happening right now.

... As you look at the presidential candidates, they all have a position on this. Do you think that we will have that?

Oh, I think it's a matter of time before the United States has some kind of program to regulate carbon dioxide emissions. The consensus of the country really has been moved. I think the combination of the movie star [who] has become a governor and the politician who has become a movie star, Gov. [Arnold] Schwarzenegger and [former Vice President] Al Gore, have really advanced understanding and public receptivity to doing something reasonably significant to address the carbon problem. ...

One of the things that has to have enormous consequence for the rest of the country is what California is doing under Gov. Schwarzenegger. The fact that he has committed to rein in both fuels and carbon dioxide emissions in the largest state in the country -- and other states are picking up on it. Washington and Oregon have; the Northeast states have; and we're closing in, I think, on the heartland of the country to address the climate problem. It makes it much more persuasive now to say, "Well, California has already got something that is as ambitious or more, in fact, with respect to fuels than Kyoto."

And California is looking forward to doing that in a way that stimulates the industries that are at the cutting edge of new energy technologies, the Silicon Valley industries that are going to find new ways to get energy from non-fossil fuel sources. That is of enormous consequence for the world. That's the reason that [British Prime Minister] Tony Blair came over to announce [a climate change agreement between the United Kingdom and California] with Gov. Schwarzenegger.

The old argument also was that the economy was more important than the environment; that if global warming measures would hurt the economy, then we wouldn't do it. What changed?

Well, it's true that certainly in the first Bush administration there was a great concern ... about the condition of the economy and what the economy could stand, particularly in a recession, which we then were in. I think that what has changed is a couple of things. One, whereas through most of the '90s what we had were scientific opinion and hypotheses, now we have observation. Alaska is melting away. We've lost a lot of the snowmelt in the Western states. ...

I think that has gotten much more attention so that there is an increasing sense among energy company executives, utility executives, chemical manufacturers [that] this is a serious problem, and it's likely to get worse before it gets better. And if we don't address it soon, it will get much worse. ...

... You went to the Rio [climate change] meeting, right?

I was head of the U.S. delegation at Rio.

... What did you expect from those agreements in Rio?

The nature of some of the agreements we reached in Rio, I think there is much more to be said for them than perhaps people have acknowledged. President Bush signed the [U.N. Framework] Convention on Climate Change at Rio, which committed the country certainly to a moral obligation to try to be more responsible and careful about monitoring, studying, researching and finally, to the extent possible, an aspirational goal: reining in our carbon monoxide emissions, bringing them back to the 1990 levels.

We've seen since then, the country is, I think, about 15, 16 percent above the 1990 levels; some countries that did agree to Kyoto, ratified it, like Canada, are 35 percent above. So it has proven more difficult than people expected. I don't think anyone in our delegation -- and certainly those of us who had argued for the president to go further -- anticipated the growth that the United States would have in the 1990s. That would have made it difficult to meet any of those objectives.

But the Rio contribution was very significant. It raised international consciousness. I focused on issues in addition to climate change: biological diversity and environmental performance generally concerned for the oceans. It was, I think, one of those moments that brought the world together around a common concern for the environment and for the planet. Those moments don't happen very often. There was something like 15,000 press in Rio, so from that point of view, it was a historic moment.

Did you agree with voluntary rather than mandatory provisions?

No. I recommended that the president commit to a mandatory program of trying to control carbon dioxide emissions going forward. I was a lonely proponent of that position at that time. You have to recall we were in the middle of a recession in the spring when we made these commitments, and I think the economic advisers simply were much more concerned about the cost. It was an unknown to them where a mandatory cap on carbon dioxide would lead; we hadn't yet had the example of the sulfur dioxide cap-and-trade program that proved so successful [and] cost-effective, either. ...

And Bush at the time was a bit hesitant about going down [to Rio]. Why was that such a hard decision for him to make?

Well, it was clear that the United States would be in a somewhat isolated position there. We had committed not to agree to the Convention on Biological Diversity [CBD] and also not to commit at least to the specific mandatory milestones -- I call them mandatory; you can't be sued if the countries don't achieve them, and most of them haven't -- of the climate commitments. It was expected that it would be controversial, and he would be criticized, as he was. But he resolved it in favor of going, taking the heat and making some very strong commitments on the environment. ...

Tim Wirth told us a funny story about when [Bush] was waffling about Rio. He said the Democrats just had a field day. They were beating him up like crazy. ... Was he getting it equally strong from the other side? "Don't you dare go to Rio."

Oh, of course he was. And within the administration we were divided. [A] number of people were concerned that he not go, thought that it was going be an environmental jamboree and that we would be the punching bag down there.

I had previously worked out an understanding with the president of Brazil that, before I advocated his coming, the president guaranteed to me that they would do everything not to embarrass him there. ... But there was a strong debate about whether he should go, and I think, honestly, the President went because he thought it was where the President of the United States concerned about these issues ought to be. ...

Eileen Claussen, who also was in the EPA back then, said that the Bush administration actually had some very innovative efficiency programs, but one thing that you couldn't do is you couldn't call it "global warming." And she said that was not done during that time.

Well, I spoke about global warming regularly. I was asked what I thought of the National Academy of Sciences' position on climate change and essentially said that when the vast proponents of scientific opinion says something is important, I accept it, and I think we should respond to it. I certainly spoke out. It wasn't always popular within the administration when I did, but certainly the president never told me not to speak on it. So I'm not so sure that that's correct.

We had Green Lights, where we showed industry how to save money by putting in compact fluorescent lights; we had Energy Star computers that put in the sleep function. All of those were Bush initiatives, and they have proved very successful. They are energy-efficiency initiatives that many people now are adopting, and we're trying to get to go further.

Do you remember the 1988 Jim Hansen testimony

I do.

What did you think of it at the time?

Well, I had had private briefings from [NASA's] Jim Hansen and had become persuaded that it was much more likely to be correct ... than not, based upon what the computer models were showing and who the scientists were who subscribed to those theories. So I believe them.

And do you think that was a pivotal moment, that testimony?

The Hansen testimony, and the anxieties within some parts of the administration to control it, certainly attracted a great deal of attention to the climate. But I thought it was almost as important that a presidential candidate, George H.W. Bush, said he was going to put -- how did he put it? -- "the White House effect on the greenhouse effect." That certainly put the issue front and center and I thought gave me the authority, as EPA administrator and sort of the principal environmental spokesman for the administration, to push things as far as I could on climate. And we did. ...

Did you think that the Clinton-Gore administration -- these were enlightened, anti-global warming experts -- did you think they would do more than Bush I?

Well, I expected that any administration in which Al Gore was vice president would have a forwarding position on climate, and it did.

Although at the end of those eight years, we were not that much further along than we'd been under Bush I.

At the end of that term, of course, Kyoto had been negotiated. We had made much less progress than we might have, but there was not the consensus in the country. There was a strong suspicion, I think, on the part of a good deal of industry about moving on climate change. There was -- and this has been true for a long time -- a very unfortunate tendency on the part, particularly of conservatives, to see the concern for climate change as an anti-growth, anti-business, almost hippie kind of emanation. ... That ideological resistance is unfortunate, and I think it's a mischaracterization of the issue and a failure to recognize that it's scientific opinion, it's not ideological views, that are driving the climate debate. ...

... You've had now three administrations, and they really have not done much. Is this a failure of government? Is this problem simply too big for government to deal with? ... And it's taken business to change their ideas.

It's very important that business is now speaking out on this issue, because the concern has been, even among those -- and I've talked to many of them -- in the Congress who believe in the science, they will say with the next breath, "But I'm not sure the economy can accommodate dealing with this." We're dealing fundamentally with combustion, which is sort of the essence of civilization, which makes technology possible. So it's a difficult problem.

The country, while I think the people have come, according to all of the polls, to support [doing something about] climate change, has not been so encouraging about whether they'd like to see, well, gasoline taxes raised or electricity rates go up or other things that might be in the future as we address the issue. So in fairness to the politicians, leadership on this issue has not been without cost; it's not been that easy. It is extremely encouraging that we now have all of the major presidential candidates supporting action on climate change, and it makes me much more confident that in the next few years we will get it.

And do you think that Kyoto was a missed opportunity? I mean, they had 95 [votes] to nothing [against it] in the Senate, and the Clinton-Gore people never really went back ... and tried to see if they could get that through the Congress.

There is a mood when negotiating these international climate or environmental treaties is appealing to the home press, and I've seen it so many times, where the people lose sight of the fact that if you don't have the United States in an international treaty of any consequence, you don't have a treaty. I think that was lost sight of by the Kyoto negotiators for particularly the European Union.

All indications are they will not make that mistake again. They recognize now -- if for no other reason than making the treaty work, but also for competitive reasons, they've got to have the United States going forward. So I think we will get a much more reasoned, less partisan, less polarizing debate on climate change when we have the next set of negotiations. That is, the European Union and the United States are likely to see their interests as much more convergent than apparently they did at the Kyoto negotiations. ...

So that 95-0 [Senate vote] didn't surprise you.

No. It is a fair argument to say that the developing countries, which, particularly China, are going to exceed CO2 emissions of the United States within two or three years, have to be involved in any control system. I have chaired the National Commission on Energy Policy [NCEP] and learned in that context how extremely sensitive American business leaders are to China's competitive advantage. They already have it in labor, and the concern was if we impose carbon constraints on the U.S. economy, it might even be worse for us, relative to China, if China is not also constrained.

So there are many reasons why China has to be embraced, too. Kyoto did not require anything of the developing countries. The next wave of responses to climate change obviously must if it's to work. And based upon my experience with the Chinese, they will not acknowledge they're doing anything on climate change. They'll say: "That's your problem. You created it, and you have to deal with it first."

But they are very concerned to improve the energy efficiency of their economy, and they're very concerned about the impact that all of the coal-fired power is having on their cities; they have 16 of the 20 most polluted cities in the world. So I think we have a basis for agreeing -- even if not on the language, then on the direction -- with the Chinese. ...

In the '90s, the oil and the gas companies funded a disinformation campaign in the country that essentially questioned the science, even after scientists had pretty much come to a consensus. Do you think that that disinformation campaign in this country moved our policy backward, kept it from moving ahead?

No. I'll say something not very politically correct here: I think that the press has, frankly, not served us well with respect to the climate problem by reporting that there is a division of scientific opinion when there's no serious division of scientific opinion. Peer-reviewed journals make very clear that climate change is accepted by atmospheric scientists all over the world, with very few outliers. Certainly the public relations campaigns of some of the energy companies have contributed to that, but the press should never have fallen for it.

... Do you think that was because it was science, and that was harder for the press to get their minds around?

Well, I think there's a tradition in the press of trying to be evenhanded, but we don't say that the earth is maybe flat because some people believe it is. ...

I want to talk about the oil companies. ... What is in it for them to begin to talk about carbon caps as they are? ...

Well, I think that there's virtually no scenario that has us not using most of the liquid fuels that are available throughout the world. In fact, it's very likely that there won't be enough to accommodate the entry into the market of India and China in a serious way. So I think many oil companies are recognizing that, and some are looking to become energy companies as opposed to just oil companies.

I don't see it as fundamentally threatening to those companies to get involved in the transition and to look to make money on new sources of energy. They have done it before, and I think some of them will decide that that's what they want to do now. I know some of them are funding some very forward-leaning research at Stanford and other places that are looking at ways to [use] cellulosic biomass for a new source of liquid fuels. ...

Is there anything in your mind that stands out as the moment where you said, "It's changed"? ...

I would like to say that the dynamic has really changed in a fundamental way, and yet it's pretty clear that Congress is having a difficult time even now responding to the country's concern about climate. We're not getting the action that I would have thought we would have, and I don't know that we will get it in this Congress. I think that the reality is that an investment of the sort that we are making in Texas could have been made without having the environmental commitments be part of it. We wouldn't have done it, but I think it could have been done.

So one has to temper one's sense of the degree to which the mood has changed and the country has changed and expectations are changed. I think they have risen significantly, and we are entering a new era. The precise consequences of entering that era are yet to be determined, and I suspect that it will be something we do in fits and starts, going forward.

But do we still have to get ready to adapt? Is there still going to be more severe weather than we have known in the past, even if tomorrow somehow there were carbon caps?

You know, I was in Washington state last year, and ... a group of experts commented casually that the state had lost 50 percent of its snowpack in the last 50 years and was expected to lose 50 to 80 percent more in the next 50 years. This is the consequence of warming that's already sort of in the system. ... The Alaska melt is already under way seriously. There are going to be a lot of changes that we cannot avert, and it's I think going to drive a sense of much more urgency for policy to address the problem. But basically, a lot of warming is in our future.

Do you think Americans understand that?

I think Americans, by virtue of the polls that I read, are beginning to understand more than they ever have about the pervasiveness of the climate problem. The fact that so many of the last 15 years have been record-setting in terms of heat -- hot summers -- is what is having an impact. But in terms of how it will affect their lives, how it will affect the availability of water -- the United Nations has said that a third of the soil moisture will disappear in the American West. That will change whole economies. The culture will be different. I don't think people quite have absorbed and assimilated that yet.