Blog of Intellectual Capital

Here is a good article written by David Gold posted at The Cleantech Group.

“With all the complexities of cleantech policy and technologies, there is only one simple thing needed for an explosion of competitive clean technologies: an increase in the price of fossil fuels.

The amount of R&D that will need to be invested in clean technology in order for them to become competitive is much greater with low fossil fuel prices. And, the lower those prices, the less appetite the private sector has for making such investments.

This leaves a much-increased burden on the back of government through grants and subsidies—a back that is close to being broken from debt.

While clean technology development is absolutely necessary, technology development takes time and, often, a long time. And technology development is fraught with uncertainty…nobody ever knows a priori whether such efforts will be successful and how long they will take. Believe me… every venture fund in the world would love to be able to know that! But they don’t.

However, virtually every venture fund and researcher will acknowledge that significant advances usually take much more time and more money than expected.

In an environment of relatively low fossil fuel prices with high price volatility, grants and subsidies for an amount of time and at a level that will make any permanent and meaningful difference are simply unsustainable. So, for all the focus on “cleantech stimulus,” the most important thing that government can do is to affect change in the cost of fossil fuel alternatives.

If we had higher fossil fuel prices, or even just clearer visibility and certainty about future increases, the free market would make dramatic increases in investment in clean technology. When the free market sees an opportunity to make a profit, it moves extremely fast.

Government actions that put in motion increases in the cost of fossil fuel alternatives, even if those increases are phased in over many years, could have an enormous impact on the money invested by the private sector in alternatives (and a corresponding decrease in need for government subsidies and grants).

This, in turn, could further accelerate technology advances, leading to a more rapid convergence of the time when various technologies can competitively reach the mass market.

Given that fossil fuels are a finite resource, it is a fait accompli that eventually alternative energy and energy efficiency technologies will become so compelling that they will dominate the market. But the future of fossil fuel prices in the relatively near term (e.g., the next decade or two) is far from certain (article), as both general economic conditions and new discoveries such as those in Venezuela’s Orinoco Belt play a role.

If we didn’t care about global warming, national security or economic security, there would be little need to do anything but let the market take its course. But irrespective of personal policy hot buttons, most would agree that we do not have the luxury of the amount of time for this transition to take on its own.”

Read the full article here.