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MIT’s Acemoglu agrees. While he is optimistic that energy technologies will be “a great platform for economic growth” and can eventually play the same type of role that hardware and software did in boosting the economy, he too is skeptical of the subsidies in the stimulus bill. “I’m quite confident that alternative energies, new hybrid vehicles, new power sources, a more sophisticated power grid, will be one of the handful of sectors that will spearhead the growth of the economy over the next decade,” says Acemoglu. But, he adds, “a lot of that [growth] will be market generated.”

Instead of providing subsidies to develop new technologies, says Acemoglu, the government should establish a carbon tax and support research. The federal government, he points out, played a critical role in the development of IT by supporting the early, basic research that led to the Web and by funding research programs in computer science and electrical engineering. But it would have been “a kiss of death,” he says, if the government had tried to dictate how to wire computers or define the type of software that should be used.

Likewise, the government should encourage the development of new energy technologies by supporting research, says ­Acemoglu, but “more soberly” than it does in the stimulus bill. He suggests “limited but well-designed funding for the National Science Foundation and other agencies that will create the right type of synergies between private, public, and university research.” That, he says, would create an environment conducive to energy R&D.

While academic economists might be worried about long-term growth strategies, the entrepreneurs and executives running renewable-energy businesses, including solar, wind, and biofuel companies, say they are struggling just to stay alive. The credit and banking crisis that took hold last fall ruined any chance of obtaining financing for most large-scale, capital-intensive projects. As a result, construction on many costly solar-power and wind-energy facilities came to a halt, and a number of companies announced layoffs. Those developing truly novel technologies, such as cellulosic biofuels, were left stranded without the prospect of obtaining the hundreds of millions in private financing needed to demonstrate their technologies on a larger scale.

“It is really ugly out there for a lot of these technologies,” says David Victor, director of the Program on Energy and Sustainable Development at Stanford University. One of the biggest potential benefits of the stimulus bill is that it might well “protect the [renewable-energy] sector in a period when it would otherwise be absolutely pummeled by market forces,” he says. “If the sector were to blow up, it would take a while for people to put Humpty Dumpty back together. And during that period, a lot of these companies would just disappear completely.”

The cellulosic-biofuels sector, in particular, is at a crossroads, says Bruce Jamerson, chairman and CEO of Mascoma, a Boston-based startup specializing in advanced biofuels. Though often touted as a source of alternative transportation fuel that doesn’t have the environmental drawbacks associated with corn-based ethanol, cellulosic biofuels are not yet produced commercially in the United States, because they are too expensive. Mascoma wants to construct a commercial-scale facility in northern Michigan that could be in operation by 2012, says Jamerson. But building the plant will cost from $300 million to $325 million. Without the grants and loan guarantees in the stimulus package, he says, “it would be very difficult to get a deal done with large equity investors and lenders on a commercial plant.”

A slew of provisions in the stimulus legislation will indeed benefit these fledgling clean-energy businesses. Howard Berke, executive chairman and cofounder of Konarka, a manufacturer of organic photovoltaics based in Lowell, MA, says that 17 provisions will “in one form or another” benefit the solar industry; they include a refundable tax credit that will effectively cover 30 percent of the cost of solar projects, a $6 billion loan guarantee program for renewable projects, and investment credits for manufacturing facilities built in the United States. The Solar Energy Industries Association estimates that overall, the provisions will create 110,000 jobs over the next two years.

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Credits: Technology Review, Tommy McCall
Video by Conrad Warre

Tagged: Business

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