The race is on ...
Around the world, more countries every day are instituting policies to promote domestic development and adoption of cleantech. Plenty of politicians are using high-minded rhetoric to exhort consumers and businesses to act, which more are, reaping real benefits. Not words, however, but deeds characterize the emerging winners in the competition for global cleantech leadership. The actions that speak loudest, and which attract business and investor attention, entail financial support from government that lowers costs or boosts revenue for cleantech development. Such support can take many forms, and various countries and governments are trying a myriad of approaches seeking the most effective in realizing the benefits of stimulating the cleantech industry.
Many things have been tried, and an enormous number of countries' governments have made investments in developing a cleantech industry within their national borders. Approaches run the gamut: relaxed regulations, expedited permitting, market development, research and development clusters, demonstration centers, low-interest loans, loan guarantees, subsidies, feed-in tariffs, tax breaks, mandates, import/export restrictions, renewable portfolio/energy standards, direct investment, and grants. By one estimate, 15 governments committed $188B of green stimulus funding in the aftermath of the 2008 financial crisis, with 45% coming from the Asia-Pacific region.
Here's a partial look at what some governments have been doing:
- Germany is aworld leader in cleantech, with 300,000 jobs in the sector and is the source of 16% of world trade in cleantech products. Germany's strengths in chemistry, engineering and manufacturing certainly play a role. So do the existence of strong, successful, global companies and several industry clusters of finance, innovation and industrial capacity. But, Chancellor Angela Merkel made clear that this is the result of deliberate long-term government policy, saying“Whoever is first to conquer green tech markets will have an enduring export advantage and create jobs.” Years of steady growth in cleantech are the result primarily of years of steady feed-in tariffs. Renowned research institutes create a steady flow of innovative companies; 70% of German cleantech companies are smaller than 100 people. The German government is also providing support for plug-in vehicles and advanced battery technology.
- Denmark's leadership in wind power due to early and steady government support is well known. It has also instituted a stiff tax on cars, and has spent hundreds of millions of dollars on bike lanes, making it one of the most bicycle-intensive countries in the world.
- France, under conservative president Nicolas Sarkozy, seeks to be a leader in climate change mitigation as well as cleantech with its Grenelle de l’Environnement. In August they announced $1.75B over 4 years in low-interest loans and subsidies. Money supporting nuclear power is matched euro-for-euro with renewable energy research and development. The program to provide rebates to trade in old
cars or buy efficient or low-carbon ones, while taxing gas guzzlers has been wildly successful. There are many other programs, including a 20% RPS by 2020. In transportation they will build 2,500 more kilometers of the TGV and support in-city public transit, while dropping all support for new roads or airports. France even has a State Minister (comparable to a US cabinet secretary) for Sustainable Development. Sarkozy wants to tax imports from countries (such as the US and China) that have not ratified the Kyoto Protocol. The Grenelle could create as many as 600,000 jobs.
- Spain first achieved fame and then notoriety for their solar and wind feed-in tariffs which were wildly successful, helping make Spain the world leader in solar. But, ultimately, at such a cost that, when the global economy faltered, they were forced to scale it back with retroactive cuts. The new plan favors small systems, typically under 100kW, encouraging more distributed generation.
- The UK has established global leadership in low-carbon and renewable energy development through EMEC, NAREC, the Wave Hub, the Renewables Obligation and more recently, through feed-in tariffs.
- Canada directly subsidizes up to $5,000 per homeowner and 25% of the cost of industrial energy efficiency programs and retrofits. Projects can be quite large. The SDTC has provided more than $1.3B in grants for renewable energy and cleantech projects that bridge the financing Valley of Death and that "make a difference to the lives of Canadians." Ontario, the financial and industrial leader amongst Canada's provinces implemented an aggressive feed-in tariff under which applications of all sizes have now exceeded 15GW in just one month. The escalating made-in-Canada component, designed to incubate domestic manufacturing, has been controversial to some, but the program has attracted so many applicants, and the OPA has had to lower the payments.
- The United Arab Emirates (UAE) is constructing Masdar City, a carbon-neutral zero-waste city, supporting a multitude of cleantech and renewable energy projects, demonstrations and capital funds. They also sponsor the Zayed Future Energy Prize.
- Taiwan just raised its Renewable Energy Standard to 16% from renewable sources by 2025 because of "robust demand" for renewable energy stemming from its feed-in tariff. The government also subsidizes purchase of equipment that conserves energy as part of its goal to cut energy intensity (energy use per unit of GDP) in half by 2025.
- China intends to spend more than $200B on cleantech investment this year, approximately 4.8% of their total GDP, and almost twice the announced amount of announced US spending over the next 10 years. Maurice Gunderson, senior partner at CMEA Capital, commenting on China as the world's largest VC, said “It’s an opportunity, a threat and a wake-up call.” China also has as much as 95% of the world's currently rare earth element (REE) supply, metals critical to a large number of cleantech products. The Chinese government has increasingly restricted the export of these raw materials over the past 2 years, reserving the bulk of the supply for use by its burgeoning domestic cleantech sector. Foreign companies wanting access are forced to site manufacturing in China, generally with Chinese partners and its supply chain.
This is just the briefest sampling of some of the initiatives. Each of the countries above have many other programs not mentioned, ranging from small seed grants to companies, block grants to local governments for energy efficiency, research funds for universities, and the list goes on. Many other countries have noteworthy or even aggressive programs too, including Australia, New Zealand, Norway, Sweden, Finland, Switzerland, Italy, Ukraine, Serbia, Japan, Korea, Brazil, ... I'm missing many for certain.
There are several things noteworthy arising from this short and necessarily incomplete survey:
- Feed-in tariffs are very popular, especially amongst the countries widely viewed as cleantech leaders. As of 2007 there were 47 jurisdictions around the world with feed-in tariffs; the number is almost certainly higher today with the UK, Italy, the Canadian province of Ontario, Finland, Serbia, Ukraine and others implementing their own just in the past year. Italy will likely soon join them.
- Development of local industry and the creation of enduring manufacturing and jobs is a pervasive aim of all governments, and results, especially from longer-established programs, show solid results.
- Education and research and development to promote core innovation is a feature of several, with the clear intention of building a pipeline of technology to provide sustained competitive advantage in the global marketplace.
- Creation of demonstration centers, especially in the UK, where developers can test, validate and compare approaches is successful at attracting innovative technology.
- Direct grants to promising companies are more common than loans and loan guarantees.
- Cap-and-trade has not been implemented anywhere but the European Union.
- Punitive taxes to disincentivize "dirty" technologies, while practiced, are not widespread. There are many more carrots than sticks.
- Renewable Portfolio Standards (called various names) are common, their use is growing, and the targets are being reset higher every year.
- Import/export restrictions are not typical, likely because they are treated as hostile by other governments
Determining best practices is hard. There’s been a lot of trial and error. Different countries have different resources, different industrial capabilities, different social systems, all of which influence the shape and success of programs. Programs are also often limited in scope, or to particular technologies rather than being generally available, creating artificial preferences and ceilings that can make evaluating the efficacy of different approaches difficult. Many also have had limited duration, or have been changed frequently, often for political reasons, adding to the assessment challenge.
The most successful programs thus far, however, share one common trait: they are the result of a steady, long-term and largely unchanging government p
olicy and regulatory environment. Government can't go it alone. Virtually all cleantech initiatives intend to catalyze and stimulate private investment, to create leverage for the public dollar. This end cannot be achieved where investors cannot evaluate, risk, reward and ROI due to uncertain governmental support, direction or constancy.
There is also activity here in the US, as well as strong concerns that the race is being lost to economies in Asia and elsewhere competing harder in the cleantech sector, or with stronger government support. So what are we doing here in the US to vigorously compete in this global race? Before looking at that, it will be useful to examine the opposition to government funding and support of cleantech. The merits of those arguments, and more broadly, the nature of the opposition will be the subject of a future post.
Chris has grown startup companies in several sectors as an executive, advisor and board member, most recently as co-founder and COO of Hydrovolts. He is passionate about the criticality of cleantech to our energy future, and enjoys the outdoors, networking over chewy coffee, and solving puzzles, the harder the better. Follow Chris on his blog or on Twitter.