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Election Does Not Spell Cleantech Doom

With the recent "shellacking" (as President Obama referred to the election results) of the Democratically controlled Congress, much of the buzz in the cleantech space has been doom and gloom. Is cleantech doomed to a new dark age? I do not believe so.

Energy policy is one area where there is an overlap of goals between the parties.  Members of both parties largely agree that energy is critical to our economic and national security. And most Republicans do not dismiss out of hand the risks of global warming. 

I suspect that energy policy will be a topic where this Congress will get something done especially with the President’sincreased desire to work across party lines.  It won’t be exactly what the president wants and it won’t be exactly what the Republicans want.  It will be an old-fashion compromise that may actually result in some policies and that will have greater long-term impact on cleantech than most of the short-term handout programs that were put in place under the largely ineffective cleantech stimulus bill

So, where can the Democrats and Republicans potentially agree when it comes to cleantech? 

1. Energy efficiency. Republicans and Democrats have demonstrated their ability to find common ground here.  George Bush signed the law from a Democratic Congress that will end the life of the incandescent bulb and that increases the fuel efficiency standards for vehicles by 40% by 2020.  Democrats like tax credits for installing energy efficiency improvements, and Republicans like reducing taxes.  Reads like a match made in heaven.

2. Renewable energy standards.  Many states have put in place such standards with support of both parties. Some Republicans in Congress have previously voiced their support.  If the definition of “renewable” were expanded to include nuclear as an acceptable alternative, I suspect there would be broad support in Congress.  A renewable energy standard is exactly the kind of long-term macro-economic policy needed to drive change and create more sustainable demand for renewable energy and energy efficiency.  Utilities putting big dollars into development of renewable energy power sources and energy efficiency will drive much more industry growth and relieve issues around debt financing to a much greater degree than the government’s ineffectual efforts to play banker.  And if the definition of “renewable” were expanded to include nuclear, then I suspect the base of support would broaden even more.  Given that most renewable energy sources can’t serve as base load, it would be the right environmental and national security move to include nuclear in the energy mix.

3. R&D.  Republicans have long been supporters of government R&D.  Although there will be an issue around funding offsets for the R&D, I believe there will be broad consensus on the need to invest in our energy future. What will happen, I suspect, is that the focus of this R&D will shift more to early stage disruptive technologies rather than the late-stage grants and government loans which are already proving to be failures. Even the Administration has internally begun to question the effectiveness of these programs.    If the scope of cleantech R&D is expanded to include clean coal technologies and next-generation nuclear, I believe the support base will broaden even more.  The most effective way to ramp up disruptive R&D funding is likely through the new ARPA-E and possibly to the few federal labs that do not have their roots in our nuclear weapons programs (e.g. the National Renewable Energy Laboratory).  By funding ARPA-E, most of the research would take place in our universities and private companies where the potential for real product development and technology transfer is much greater than in our defense oriented federal labs.  The biggest challenge will be finding the funds given the need to reduce the deficit.  One possible solution would be to take the funds already appropriated to later stage projects/loans that have yet to be awarded and redirect them to disruptive R&D.  Another would be a…

4. Gas Tax.  Cap and trade is likely dead.  And given that such a program would have been a largely ineffectual mess (see my previous post, Cap and Trade: Right Debate, Wrong Solution) that is not necessarily bad.  As I pointed out, the area where there is the greatest overlap between environmental, national security and economic objectives is with gas/diesel, which most cap and trade proposals largely wouldn’t have touched. The co-chairs of President Obama’s bi-partisan tax commission recently included a gas tax as a piece of its budget solution and two key Senators (one Republican, one Democrat) recently recently wrote the commissionencouraging them to consider even bigger increases.  A heftier tax phased in over time may be possible by using the concept of a “tax and dividend”, whereby a tax is levied to increase its price and much or all of the revenue is distributed back to consumers. If the money raised from this tax is largely given right back to the consumers in the form a rebate, then it’s not a tax increase but rather a tax incentive to reduce consumption of gasoline/diesel.  Increasing the cost of gasoline/diesel to drive market demand for alternative fuels and energy efficient vehicles can help Republicans and Democrats achieve their desire of enhancing our national and economic security while reducing carbon emissions.

5. Government Procurement.  The government is a large consumer of many items.  One of the best ways to accelerate market adoption is by creating a market for the product/service.  For example, the Federal government’s decision to require all new buildings to be LEED certified is accelerating a shift in the building industry to green buildings.  The government purchases a large amount of energy for buildings, vehicles, airplanes and ships.  Policies that drive increased purchases of domestic energy sources based on non-fossil fuels can provide a significant lift to multiple cleantech industries.  The Department of Defense understands the critical nature of this issue, especially around liquid fuels.  The Pentagon’s concern provides the nexus of an opportunity for collaboration between Democrats and Republicans on government procurement policies. 

Even if you believe we will see a stalemate in Washington on cleantech, the global macro-economic trends will not change. Consumption of fossil fuels is accelerating as the world, especially heavily populated China and India, dramatically increase the number of automobiles, power plants and factories.  It is a certainty that the price of these commodities will, on average, increase over time.  The next spike in oil prices, I suspect, won’t be too many years away and, worst case, whatever lull in cleantech enthusiasm that may occur will be quickly washed away. 

The essence of any government policy with the goal of accelerating cleantech is simply an effort to narrow the time between today and the inevitable day when fossil fuels become expensive enough that various renewable energy and energy efficiency solutions become compelling without any government involvement.  If you’ve read my previous posts, you know that I do not believe that we will achieve our cleantech goals through massive grant or loan programs to the private sector.  

Policies that target the underlying macroeconomic environment will ultimately have a much greater impact than handout programs.  Many of the policies that lie in the zone of potential cooperation between Democrats and Republicans such as gas tax, national renewable energy standards, and federal procurement policies can help drive steady long-term demand for renewable energy and energy efficiency. I am optimistic that these are areas where real progress can be made.   

David Gold is a Partner with Access Venture Partners, an early-stage venture capital firm with offices in Colorado and Texas.  This article was originally published on the GreenGoldBlog and was reprinted with permission.

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