The Clean Energy Economy: A New Industrial Revolution Rising From Challenging Times

Strong national leadership needed now more than ever.

Hemant Taneja 11/19/2008

9 Comments

In the last five years, many venture capitalists (myself included) have committed to backing entrepreneurs who aspire to build the next generation of clean energy companies that will endure. Thousands of companies have formed to harness alternative forms of energy like wind, solar and biofuels; and to reduce man's carbon footprint. Billions of dollars have been poured into this fledgling entrepreneurial ecosystem with the vision of creating significant wealth, millions of jobs, and energy security for our nation.

When the Telecommunications Act of 1996 was passed, entrepreneurs focused on the communications sector, and within a decade companies like Google, Yahoo and EBay became household names and changes heretofore unseen since the Industrial Revolution occurred. It's time for another Industrial Revolution, fueled by clean energy.

Despite the capital-intensive nature of clean energy companies, the nation's entrepreneurial ecosystem is committed to building a clean energy economy for three primary reasons: 1) a strong and growing belief that concern over climate change and increasing energy demand from emerging economies have created a long term opportunity for clean energy innovation; 2) a conviction that technology and business innovation can reduce our carbon footprint and produce viable alternative energy sources at scale; and 3) the development of a favorable U.S. policy framework at the federal and state level, that has attracted large scale private funding to build the next generation of infrastructure.

However, I submit that the continued development of our clean energy economy is now at risk with the advent of the economic crisis. Large financial institutions that had begun to finance the commercialization of clean energy technologies have suddenly lost their capacity to do so. Chief executive officers of emerging clean energy companies now have genuine fears as to whether enough capital will be available to fuel their growth. Furthermore, the slowdown of emerging economies as well as a dramatic reduction in the price of oil further hinders the situation. Investors and entrepreneurs alike are forced to reconsider funding this sector, worried that this may lead to another false start akin to the setback in the early 1980s.

The newly elected administration must show its full resolve and partner with the entrepreneurial ecosystem by reinforcing our national commitment to achieve energy independence and curb global warming. Swift and comprehensive action is required.

First, the incoming administration must make a significant financial commitment towards research and development of clean energy technologies. We need to recognize that while the $15 billion of annual funding that President-elect Barack Obama has called for is a step in the right direction, it may not be sufficient for the task at hand. We need to financially enable our nation's research institutions to innovate in clean energy without relying mostly on funding from existing energy and oil companies that do not necessarily feel an immediate imperative to commercialize such innovations. Significantly increasing federal dollars for unencumbered research and development will attract increased entrepreneurial activity around commercializing clean energy solutions that are needed for the U.S. to lead the way to a secure and environmentally sustainable future.

Second, the Obama administration must develop a comprehensive national policy framework to build and adopt alternative energy solutions. We need a national cap and trade legislation; an aggressive renewable portfolio standard to reduce our dependence on oil and drive the adoption of all forms of clean alternative energy; and energy efficiency programs through regulations and incentives for utilities that can increase the energy productivity of our nation. For a comprehensive framework, we need to look no further than my own home state, Massachusetts, which has quickly enacted a comprehensive clean energy strategy to mandate energy efficiency programs, to establish a renewable portfolio standard, and to limit green house gas emissions.

Finally, the administration needs to have an unbiased strategy for lending its financial support to this sector. The federal government shouldn't be in the business of picking technology winners. Instead, it should lend support to all sustainable clean alternative technologies that have a roadmap to economic viability without any subsidies. This financial support needs to come in the form of strong investment tax credits and production tax credits that predictably decrease and ultimately disappear over a period of time, and a streamlined loan guarantee program that enables these companies to attract debt and equity investors to fund the nation's new alternative energy infrastructure. A strong financial commitment by the federal government will spur confidence among our entrepreneurs and investors to continue developing the clean energy sector.

All over the country, entrepreneurs are hard at work founding and building new energy companies, new fuel companies--even new car companies. With the right signals from Washington, it is hard to imagine anything short of a new industrial revolution. The right policies on clean energy will bring economic prosperity, energy independence, and global leadership in solving the world's climate crisis. This is the opportunity that awaits the new administration.

Bio

Hemant Taneja and David Danielson lead the clean energy practice at General Catalyst Partners, a Cambridge, MA based venture capital firm. Hemant sits on the board of a number of leading clean energy companies and co-founded and co-chairs the New England Clean Energy Council. David is the founder of the MIT Energy Club, a board member of the MIT Solar Revolution Project, and co-founder of the MIT Energy Conference and New England Clean Energy Council.

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