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Investing in Clean Energy Technology – The next big policy battle with CA’s Prop 23

August 9, 2010 Leave a comment

A good article was published yesterday by greentechmedia on the topic of clean energy investing in the United States. Written by the co-chairman of the board of the Clean Economy Network Educations Fund, the article provides some enlightening commentary on the state of cleantech investing now that carbon cap-and-trade has (seemingly) died – for this year, at least.

Will California’s carbon regulations die with federal cap-and-trade ambitions?

Now that Harry “Lucy” Reid has pulled the climate legislation football away at the last minute, cleantech investors can be forgiven for taking a big sigh and forgetting about climate policy for a while.  After all, until a couple of years ago most cleantech VCs were adamant about purposefully ignoring policy efforts and effects, because of the randomness factor it would imply for their investments.  Of course, with a more supportive administration and supposedly looming national climate legislation many VCs have ended up spending much more time on policy work and visits to Washington, DC than they’d expected to.  And so it wouldn’t be surprising to see these investors take the opportunity to step back from all that mess, to wait and see what happens at the Federal level over the next few months.

This feels like the “story-of-our-lives” with the Washington election cycles. A constant push and then pull-back or ebb-and-flow approach to planning and investment strategy that results in often inefficient overspending by companies at one point, followed by a sudden reduction in funding corresponding to the election cycles. With this approach, predictability isn’t a part of the landscape – and this lack of predictability makes companies uneasy about investing in long-term R&D projects.

Last year, I was talking with a friend who works for an energy company that would likely overhaul its business practices for R&D investments if carbon cap-and-trade were to pass in the Senate. This type of legislation would provide certainty in a market where there is currently huge uncertainty over when or how the United States will choose to regulate carbon dioxide emissions. What the company needed was certainty before making the choice to increase their investments in R&D.

The fact that cap-and-trade might have died in DC (for now) has already caused ripple effects on more than cleantech investing. Lets take California, for example…

But one other big mess is still looming, on the opposite side of the country from Washington, DC.  In California, Prop 23, an effort to roll back the state’s landmark climate law AB32, is on the ballot in November.  And the silliness is already in full swing (carbon emissions aren’t “pollution”, really?).

Prop 23 aims to suspend California’s 2006 global warming legislation (AB32) and brought the fight against carbon dioxide emissions being classified as “polluters” front-and-center. If carbon dioxide emissions are no longer classified as pollution, then regulations placed on “major polluters” (for example – power plants, refineries) could not be used to reduce carbon dioxide emissions.

The damage to the cleantech industry if Prop 23 succeeds would hit more broadly than just in California, according to one report by the Clean Economy Network.  Since California is such a major economic market, environmental regulations introduced in California tend to impact markets even outside of the state — witness how California’s auto emissions standards and goals have impacted automaker fleet efficiency efforts over the past few decades.  Besides, so much of the US cleantech industry and venture dollar pool is based in California to begin with.  Certainly, Prop 23 is already introducing regulatory uncertainty to the market across many cleantech sectors, and as mentioned in my last policy-related post, such uncertainty is damaging by itself.

California is a sort of test-bed for United States environmental and energy efficiency regulations. The state is home to the Rosenfeld effect, aggressive building standards that require attention to energy efficiency, and the most aggressive transportation emissions regulations in the United States. The choices made in California have long influenced decisions in Washington, and it should be no surprise that the reverse is also true.

It’s unclear how Prop 23 will fare.  On the one hand, early polling suggested that Californians were against it (ie: for keeping AB32 in place).  On the other hand, the ad campaigns are just getting started, Prop 23 has some deep-pocketed proponents, Californians have a history of simply voting in favor of ballot props, and it’s a non-presidential election year with a big backlash against incumbents and any and all regulation…

If Prop 23 passes it will mark a pretty big setback for the US cleantech industry.  On the other hand, if it’s defeated it will be a compelling example of the cleantech industry teaming up to win over public sentiment in favor of supportive policies.  So with the US Senate increasingly looking useless on energy and climate issues, even being across the country in Massachusetts it looks like this California ballot initiative is something I personally will start spending more time on.

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Drilling off the Coast of Meg Whitman’s California

Check out a great post by fellow LBJ’er, Chris Mergerson, here.

“My initial personal bias is to instinctively like Meg Whitman’s candidacy for Governor of California. From a visceral standpoint, I like her style and management experience, and I don’t know if the words “Jerry Brown” and “agent of change” go well together in 2010. Nonetheless, performing due diligence of candidates for elected office is always a good idea.

I’m not a resident of California anymore, and I have no designs on moving back anytime soon. The barbecue, the fishing, the people, the football, and the all-enveloping mugginess and epic thunderstorms of the state of Texas have their tentacles buried too deeply into me to be easily separated from my person for any extended length of time; it is the state of my heritage, the “tex” in “chrisdctex.” (I could spend the rest of my life with the Hill Country of Texas as my home base and be happy.) Nonetheless, I offer the following public service: I checked out the policy agenda on Meg Whitman’s website, to see what she has planned for energy policy in California, should she be elected governor.”