Elon Musk, the PayPal co-founder and serial entrepreneur who's worth $6.7 billion, is looking to solve a major world problem: carbon emissions. He wants to bridge the gap between today's fossil fuel-based economy to the clean energy economy of the future.

This is how he's taking us there.

ELECTRIC VEHICLES

For starters, there’s Tesla Motors, the electric vehicle company Musk co-founded and for which he serves as Chairman, CEO and Product Architect.

The mission of Tesla is "to accelerate the advent of sustainable transport by bring compelling mass market electric cars to market as soon as possible," Musk writes in his brilliantly coy The Secret Tesla Motors Master Plan (just between you and me).

Musk talks about the “unpriced externality” in the price of gasoline—as in, emissions from combustion engines adversely affect the world and its population, and that’s not being factored into the cost of gasoline.

“When you have an unpriced externality," he says in this video, "you can’t quite rely on the market to do the right thing. So in order to have electric vehicles come sooner than they otherwise would—electric vehicles were always going to be the long-term transportation mechanism, but to make that day come sooner—you have to bridge that gap with innovation. That was the goal with Tesla: to serve as a catalyst to accelerate the day of electric vehicles"

You might say—OK but wait, don't electric vehicles simply shift this “unpriced externality” to electricity, the majority of which is generated through coal and natural gas-fired units? And although a growing portion of the U.S. electricity mix is clean, the shift is somewhat inevitable at the moment (but we'll get to that). Still, electric vehicles are clearly a big step in the right direction: 

But the real genius of Tesla does not lie in the emissions reduction of the Tesla Roadster; it lies in the emissions reduction potential of all cars. If even 10% of all U.S. vehicles were fully electric, there would be a substantial reduction in harmful carbon pollution.

"The reason for me to do it is not because I saw a huge market opportunity. It was clear that we were not going to see electric cars from major car manufacturers," Musk said, as reported by Techcrunch. “The industry was operating under two false premises. One, that you could not create a compelling electric car. And two, that no one would buy it.”

"Now that we’ve become profitable, we expect that other manufacturers will get into the electric car market,” Musk observed, but "the response thus far has been slower than I’d like."

That's right: Musk is disappointed that his competitors aren't doing a good enough job.

That's because the strategy of Tesla "is to enter at the high end of the market, where customers are prepared to pay a premium, and then drive down market as fast as possible to higher unit volume and lower prices with each successive model," Musk said.

Tesla is headed in that direction: It released the Tesla Roadster in 2010 with a base price of US$109,000, the Tesla Model S with a $69,900 base price and a $89,900 performance price, and is now planning to release the Model X (an electric family car!) for $40,000 in late 2014.

Further proof of the strategy is that Tesla is not just a retail car company; it has partnered with Toyota and Daimler's Mercedes Benz to help them develop their electric vehicle technology. 

Elon Musk is not just leading the electric vehicle market; he’s leading the market to electric vehicles.

SOLAR ENERGY

If Tesla is about changing the way we consume energy, then SolarCity is about changing the way we produce it.

Elon Musk's cousin Lyndon Rive co-founded SolarCity, a residential solar installer who's also much more than that, because "we have to change the way we burn fossil fuels. We just have to." Musk is the primary shareholder and chairman of SolarCity, and told Rive to "look into solar" on their way to Burning Man in 2004. 

SolarCity customers put little-or-no money down to get solar panels installed on their homes. This gives them clean power and energy independence but also crucially cuts their electricity bills. The company owns the solar panels and sells electricity generated by the distributed systems back to the customer under 20-year contracts. 

The model seems like one that's build to grow gradually. And while the business models of other third-party installers resemble SolarCity's, it stands out because it keeps innovating, particularly in how it finances expansion. 

In late 2013, SolarCity sold a historic $54 million in debt from customer-backed contracts in order to raise capital and scale faster. But SolarCity said that was just the tip of the iceberg: the company said it would offer another $200 million in securitized debt this year, with plans for even more. And just recently, non-institutional backers can invest in portfolios of solar assets online, all this made possible through SolarCity's acquisition of Common Assets.

The beauty is that the faster SolarCity can scale, the brighter it's long-term future looks. But the faster it expands, the more other solar installers will look to do the same.

Just look at it's share of the PV market—32% today. 

​Of course, you might say, all this is good and great, but you cannot simply phase fossil fuels out of the power mix because solar is intermittent—as in solar panels can't generate power when the sun doesn't shine. Which is true, so once again the unpriced externality in fossil fuels has been mitigated, but not removed.

Musk, however, believes "quite strongly that solar power will be the single largest source of electricity generation by the mid-point of the century." And there are reasons to believe that's possible. Certain technologies—energy storage comes to mind—need to become viable and cost-effective in order for that to happen. 

Not surprisingly, SolarCity is already making that happen by bundling solar panels with Tesla batteries. It's a smart partnership that makes both businesses better, and other solar installers are already following in its path.

“People do not understand the magnitude of the business," Musk said. "It’s really very, very significant.”

BRIDGING THE GAP

Tesla and SolarCity solve the problem of carbon emissions from both sides of the energy value-chain: production and consumption. 

It's here that the unpriced externality in fossil fuels comes full circle. Electric vehicles won't solve the world's carbon emissions problem; they will simply shift them to the power grid. But if you slide solar energy into that equation, populating the grid and homes with solar arrays, then you've got a powerful answer.

“The overarching purpose of Tesla Motors (and the reason I am funding the company),” Musk wrote in his Tesla business plan, “is to help expedite the move from a mine-and-burn hydrocarbon economy towards a solar electric economy.”

Musk did not start these businesses just because he saw an opportunity; he launched them in order to bridge the innovation gap between the reality of today and the future he sees for tomorrow.