Bill Gates, head of charity, is every bit as brilliant and hyperrational as Bill Gates, head of Microsoft, ever was. The cochair of the world's biggest foundation can hold forth on the impact of polio in India, the challenges of fixing American high schools, and the necessity of distributing better seeds to small farms in Africa. But he really gets amped up about the future of energy. "If you gave me the choice between picking the next 10 presidents or ensuring that energy is environmentally friendly and a quarter as costly, I'd pick the energy thing," he told the audience at the Wired Business Conference in May. Gates fielded questions from Wired editor in chief Chris Anderson (and some audience members), geeking out on energy technology, policy, and economics. In these highlights from the hourlong session, Gates argues that nuclear power is still safer than all other energy options, rich countries aren't spending enough on R&D, and installing solar panels on your roof is not helping to reduce CO 2 emissions. It's merely "cute."

Chris Anderson: How has Fukushima changed your perspective on nuclear power?

Bill Gates: What happened in Japan is terrible, and there are many reasons it should have been avoided. It's a 1960s plant design, generation two, put into service in the early 1970s. Emergency planning and execution were quite weak. The environmental and human damage is clearly very negative, but if you compare that to the number of people that coal or natural gas have killed per kilowatt-hour generated, it's way, way less. The nuclear industry has this amazing record, even equipment from generations one and two. But nuclear mishaps tend to come in these big events—Chernobyl, Three Mile Island, and now Fukushima—so it's more visible. Coal and natural gas have much lower capital costs, and they tend to kill only a few at a time, which is highly preferred by politicians.

Anderson: Do you think that it's possible for a leader to overcome the political opposition to nuclear, post-Fukushima?

Gates: Energy sources are highly regulated, as they should be, and many of them require government involvement in the early stages to get the technologies going and work out rights of way—they inescapably involve politics. Politicians have to deal with deaths, whether they're from coal mines or particulate. But voters seem to want energy that lets them drive around and heat their homes.

The good news about nuclear is that there's hardly been any innovation in the past three decades, so the room to do things differently is quite dramatic. The difference between today's designs and one from the 1960s is night and day. We understand heat pipes a lot better today. We understand what the decay of heat looks like. There's this company, TerraPower, which former Microsoft CTO Nathan Myrhvold and I have spun out of his invention group, Intellectual Ventures. We've got a new nuclear design, a generation four. On paper it's quite amazing.

And when I say on paper, I really mean in a supercomputer where we simulate everything. In almost every realm, software simulation changes the game. With those generation-one and -two designs, they never could simulate the disasters. We can simulate Richter-10 earthquakes. We can simulate 70-foot waves coming into these things. It's very cool. And we basically say no human should ever be required to do anything, because if you judge by Chernobyl and Fukushima, the human element is not on your side.

The problem is that plant design doesn't move at the speed of computers, so the best case is that by 2020 one of these will get built and that by 2030 you could have hundreds of them. And then, if it's really as economical as we say, it starts to make a big impact.

Anderson: When you look at the big picture, where should we be focusing besides nuclear? On massive solar plants in the desert? On middle-size stuff for office roofs? Or is there a reinvention that could be done right in the home?

Gates: If you're going for cuteness, the stuff in the home is the place to go. It's really kind of cool to have solar panels on your roof. But if you're really interested in the energy problem, it's those big things in the desert.

Rich countries can afford to overpay for things. We can afford to overpay for medicine, we can overpay for energy, we can rig our food prices and overpay for cotton. But in the world where 80 percent of Earth's population lives, energy is going to be bought where it's economical. People are going to buy cheap fertilizer so they can grow enough crops to feed themselves, which will be increasingly difficult with climate change.

You have to help the rest of the world get energy at a reasonable price to get anywhere. It's great to have the rich world, because we're there to think about long-term problems and fund the R&D. But we get sloppy, because we're rich. For example, despite often-heard claims to the contrary, ethanol has nothing to do with reducing CO 2 ; it's just a form of farm subsidy. If you're using first-class land for biofuels, then you're competing with the growing of food. And so you're actually spiking food prices by moving energy production into agriculture. For rich people, this is OK. For poor people, this is a real problem, because their food budget is an extremely high percentage of their income. As we're pushing these things, poor people are driven from having adequate food to not having adequate food.

The most interesting biofuel efforts avoid using land that's expensive and has high opportunity costs. They do this by getting onto other types of land, or taking advantage of byproducts that aren't used in the food chain today, or by intercropping.

Anderson: What's intercropping?

Gates: Intercropping means you're exploiting holes in the calendar year, making use of periods when farmers have chosen to leave the land fallow. It can actually be beneficial, particularly if the crop is leguminous. Like, you grow alfalfa or soybeans in those periods, and it restores nitrogenous compounds to the soil.

Anderson: Which types of plants do you think have the most potential for biofuel?

Gates: It's not quite clear. There's a ton of algae stuff. The number of ways to do things with algae is pretty amazing, and I'm invested in a number of them. There are various grasses. Miscanthus is this very fast-growing grass, but you'd have to process it in the right way. And then there's just taking the crop residues and coming up with a processing technique.

Anderson: Crop residues—you mean like corn stalks and other waste materials.

Gates: Yes. It's ultimately a chemical processing question—how do you take what's basically a cellulose input and make it into a hydrocarbon? There are different ways to do that, none of which are all that economical. There's catalytic converters at high temperature. There's acid processing. There are a few companies that claim they have these magic enzymes. It's possible you'll get some advances with those techniques.

If you can start with cellulose as your feedstock, then the economics start to work. But the amount of landmass that you have to use if you actually want to start substituting biofuel for oil is pretty unbelievable. You can process your garbage, corn stalks, cut up some wood ... But that's just a rounding error, it doesn't add up to much and it won't measurably impact US oil importation.

Anderson: Transportation is one large source of energy consumption. You were just in China visiting BYD Automobile, which makes a lot of electric cars. What did you learn while you were there? What do you think of their approach to electric cars and batteries?

Gates: BYD is building great lithium batteries. They are not yet the best, but they're close. We saw a car factory that turns out 300,000 vehicles in a spot that had been a field 18 months before. It's incredible to see the speed. The engineers are living in a dormitory and working 16 hours a day, and they don't talk about permits or getting time off. I've seen this before—when I visited Japan in the '70s, when I visited Korea in the '80s. The quality of your engineering talent is so deep and high that your bias toward doing hard things is incredible. Some of their ideas are overly ambitious; 70 percent of those products—cars and batteries—will never come out. But in the next five years they may take the great work that was done in Japan and Korea and go beyond it.

Anderson: Lithium and other batteries are some of the great 21st-century technologies, and China has made them a priority in a way the US hasn't. Do you think the US can compete?

Gates: The current lithium technology was invented by a guy at the University of Texas; innovative battery companies are overwhelmingly here in the US. There are several that venture capitalist Vinod Khosla backs. There are people like Donald Sadoway at MIT, whom I back directly. I think if you want a leading indicator that you can feel good about, look at the amount of IQ working on energy today and the kinds of tools those smart people have to communicate and to create simulations. Compared to 20 years ago, it's night and day. In terms of innovation IQ and risk-taking and starting up new companies, the US blows everybody else away.

You could have the government throw money at the most politically favored guy in the country to go build a battery factory. And there are billions of dollars that have been assigned to that waste. Or you could actually back people who have better battery ideas.

You have to think of two types of batteries. One is a battery for a car, and it has to be light and crash-proof, but the total amount of energy it has to store is not all that large. Now, that doesn't give you an environmental benefit unless your grid has somehow changed. But at least it gives you a security benefit, because you're sourcing your coal for your grid locally. The harder battery problem is the second type—the grid battery. If you're getting, say, 50 percent of your energy from solar, and the sun only shines during the day, then you have to be storing enough energy for the night. And that is a mind-blowing problem. I mean, that's more demanding by a factor of a hundred than any other battery challenge we have today.

I think people deeply underestimate what a huge problem this day-night issue is if you're trying to design an energy system involving solar technology that's more than just a hobby. You know, the sun shines during the day, and people turn their air conditioners on during the day, so you can catch some of that peaking load, particularly if you get enough subsidies. It's cute, you know, it's nice. But the economics are so, so far from making sense. And yet that's where subsidies are going now. We're putting 90 percent of the subsidies in deployment—this is true in Europe and the United States—not in R&D. And so unfortunately you get technologies that, no matter how much of them you buy, there's no path to being economical. You need fundamental breakthroughs, which come more out of basic research.

From the Audience: What about on the usage side? What do you think of the technologies that are increasing efficiency, cutting down on the amount of energy consumed?

Gates: There's certainly lots of room for increasing efficiency. But can we, by increasing efficiency, deal with our climate problem? The answer is basically no. The climate problem requires more than a 90 percent reduction in CO 2 emitted, and no amount of efficiency improvement is going to address that. As we're improving our efficiency, poor people are increasing their energy intensity. You're never going to get the amount of CO 2 emitted to go down unless you deal with the one magic metric, which is CO 2 per kilowatt-hour.

Anderson: Imagine a world where we have made a transition to electric cars, and we have a smart grid, and storage is distributed on some level. Can you imagine that microgeneration would make more sense in a world where we have the ability to use, say, electric car batteries as local storage and have a microgrid model?

Gates: No. We should all grow our own food and do our own waste processing, we really should. But scale has some significant advantages in terms of reliability, and electricity is something you want to be reliable. Also, this is dangerous stuff: For solar to work well, you have to generate very high temperatures. Do we want everybody to have that on their roof? No. It's just not going to happen.

Anderson: So suffice to say we will find no solar cells on the roof of the Gates residence?

Gates: Oh, we like to be cute like everyone. For rich people, this is OK. Rich people can do whatever they want.

Chris Anderson (chris@wired.com) is editor in chief of Wired.