By Rafiq Dossani

Cleantech includes technologies to reduce carbon dioxide emissions, and raise the productivity and efficiency of energy production and usage systems. As carbon emissions are public costs, government regulation and subsidies are key drivers of Cleantech. Regulation is used to ensure that emission targets are met, while subsidies are used to reduce private costs of investing and installing in Cleantech systems.

Although linked by the common goals of reducing carbon emissions, different stages of national development dictate different approaches to Cleantech. For instance, in developing countries, green electrification systems largely focus on the best ways to add generation, transmission, and distribution capacity to the electricity grid in order to meet the needs of unserved locations and to meet the emergent needs of commerce and industry. The carbon impact of electrification comes directly from new electricity generating stations and indirectly from industries that are set up to use the new electricity capacity. The measurement of carbon impact is derived from the ratio of green electrical energy, which is the ratio of electrical energy produced from renewables to the total electrical energy produced. The approach to reducing carbon emissions in developing countries usually means incentivizing investments in large-scale renewable sources of electricity, such as hydropower and wind power.

In developed countries, the grid and total capacity are adequate. Hence, green electrification focuses on reducing the emissions' content of existing power plants.

The importance of distributed power generation may also vary with national priorities. Distributed power generation through community-based or homeowners' investment in small-scale renewables (solar and wind power) in developed countries may be desirable for its contribution to mitigating climate change. These investments are likely to require state subsidies to offset the higher costs of such energy, vis-à-vis conventional grid power from thermal sources.

In developing countries, investing in clean distributed power generation can save the cost of investing in yet-unbuilt transmission and distribution systems. It also improves the quality of power in many cases, as developing country grid systems are often unreliable. Hence, the subsidies or other incentives needed to build a distributed power grid are likely to be lower in developing countries.

The differences in national priorities lead to varied regulatory and subsidy regimes, resulting in diverse opportunities for Cleantech. On the one hand, large-scale solar energy installations are more important to developing countries and will be incentivized accordingly. On the other hand, efficiency-raising investments within older power plants based on thermal generation are more important in developed countries and will be incentivized accordingly.

A similar difference exists in another large focus area for climate change: transportation. In developing countries, the focus of carbon emissions in this sector is on enabling investment in rail, and thus increasing its spread relative to road transportation. The carbon impact is measured by the ratio of carbon dioxide per ton-km of rail to road miles traveled by passengers (or goods transported by freight rail).

By contrast, in developed countries, the focus is on the conversion of existing transport systems based on oil into electricity, through the spread of electric-powered vehicles. The gross impact is measured by the ratio of central station electricity to final energy use.

Government policies that affect the growth of Cleantech consist of two types, namely emission reduction policies (such as "cap and trade") and renewable energy policies. Emission reduction schemes consist of limits on allowable emissions, taxes, and the issuance of tradeable emission allowances and permits. Renewable energy schemes consist of policies that encourage the production of energy from renewable energy resources such as water, wind, and solar power. The policies manifest in schemes that provide tradeable certificates based on the amount of energy produced from renewable resources.

There are some important similarities and differences between the two methods. The similarity is that both types of certificates are issued to those who generate energy. However, carbon credits may also be issued to those industries that use energy and release carbon, such as the transportation sector. The emissions reduction schemes lead to the issuance of carbon credits, or the right to pollute to a pollution generator. The end-user of the carbon credit is also a pollution generator. The renewable energy schemes lead to the issuance of either certified emissions reduction (CER) certificates or green certificates, to a renewable energy (green) producer. The end-user is either a distributor or retailer of energy that is required to sell a portion of its energy from renewable sources.

It is clear that Cleantech is becoming very important to the centers of technology development. Bay Area startups, which usually attract about one-third of venture investments, landed a remarkable 46 percent of venture dollars during the third quarter of 2009. The swing factor was Cleantech, in which investments rose by 89 percent over the previous quarter, resulting in Cleantech overtaking software as a destination for venture capital.

What is less realized is that much of the increases in VC investment comes as a consequence of government support for this sector. For instance, Silicon Valley-based electric car maker Tesla Motors raised $82.5 million of venture capital in September 2009, which was three months after the U.S. Department of Energy granted Tesla a $465 million loan guarantee to build factories. And Fremont, a California-based solar cylinder developer Solyndra, raised $198 million, also in September 2009, after the DOE granted $535 million in a loan guarantee for its new manufacturing facility.