2007: The Year of Cleantech
By: Daniel R. Ballon, Ph.D
12.28.2007 1:30:00 PM
Amidst growing public concerns over rising fuel prices, instability in the Middle East, and global climate change, a new ‘clean technology' industry dominated tech sector investment in 2007. Despite the influx of private capital, the birth of innovative new startups, and the success of market-based solutions, policymakers stubbornly hold onto an obsolete model where only governments can tackle environmental challenges. If lawmakers cannot resist the temptation to pick winners, set standards, and micromanage research, a thriving new cleantech industry will be strangled in its cradle. The ‘clean tech revolution' embraces a belief that "developing clean technologies is no longer a social issue championed by environmentalists; it's a money-making enterprise moving solidly into the business mainstream." In the first nine months of 2007, venture capitalists invested $2.6 billion in cleantech startups. Investment has increased 11-fold over the past five years, making cleantech the third largest venture capital investment category, behind only software and biotechnology. In 2007, nearly half of all U.S. investment flowed into California-based ventures, and California cities captured three of the top five spots in a recent SustainLane ranking of cleantech "incubation clusters." Excitement over cleantech is not limited to the venture capital community. Established firms are also making significant investments. For instance, oil giant BP unveiled in February plans to invest $500 million in a new institute for biofuels research at UC Berkeley. In May, IBM announced that they will spend $1 billion per year on developing "energy-smart technology innovations." Last month, Google committed to spend hundreds of millions of dollars on developing renewable energy sources which will be cheaper than coal. These investments in cleantech are driven by a strong profit motive. A recent study by Clean Edge forecasts that cleantech will grow into a $226 billion market by 2016. For comparison, this is over four times the size of the current biotechnology market. This growth will result in both a cleaner environment and a stronger economy. According to E2 Environmental Entrepreneurs, U.S. cleantech investments could generate 500,000 new jobs over the next three years. If current trends continue, half of these jobs will be created in California. Even though the cleantech industry is less than five years old, early signs of success are on the horizon. For example, San Jose-based Nanosolar, Inc. has created a revolutionary new type of solar cell which is thinner than a sheet of aluminum foil and 1/10th the cost of traditional technologies. Last month, the product was named Innovation of the Year by Popular Science Magazine (edging out the iPhone) and has generated investments in excess of $100 million. After five years of development, Nanosolar celebrated last week as its first commercial panels rolled off the assembly line. The company's CEO, Martin Roscheisen, predicts that in 2008, Nanosolar will single-handedly outproduce every solar plant in the U.S. combined. This year's cleantech boom demonstrates that a thriving and innovative industry can develop in the absence of government interference. Despite this fact, politicians like former state controller Steve Westly continue to disregard the evidence and argue that "without governmental support-at the local, state, federal and global levels-the economic playing field won't be level and a post-petroleum economy won't truly take shape." Westly fails to understand that a subsidy for one technology can be a death knell for the rest. If government interferes to create a ‘level' playing field, inferior technologies will be artificially propped up at the expense of all others. Policymakers cannot correctly predict which technologies would prevail in a competitive market, and fortunately, they don't have to. The industry's success in 2007 shows that investors don't need extra incentives to take risks on clean technology. All the ingredients are in place for a cleantech revolution: a healthy profit incentive, an energized community of innovators, and a plentiful supply of entrepreneurs looking to invest their profits from the last major tech revolution. The best thing that lawmakers in Sacramento and Washington can do for the environment is to keep their heads in the clouds.
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