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5 Questions for Mark Donohue, On Stimulating the Green Economy

Last fall, Mark Donohue sold his controlling interest in Expansion Capital Partners and resigned as managing partner and chairman to teach at his alma mater, Babson College. He now teaches cleantech entrepreneurship, and is developing a cleantech curriculum that includes every facet of the business, including public policy.

I recently talked with Donohue about what the federal government might do to stimulate the green economy.

1: Will President Obama’s proposed stimulus package help cleantech VCs and their portfolio companies?

The nature of the stimulus that’s being proposed will support the established players best because they’re able to add jobs. The best risk-reward profile for infrastructure investing can be done through large, public companies. Obviously, those companies will look to deploy new technologies, and that fits the startup profile.

2. Are you not optimistic about venture opportunities associated with the stimulus?

When we look at what Obama’s talking about stimulating here, clearly he’s talking about a new electric grid, but a lot of that is building new transmission lines to renewable energy sources to deliver it to new regions. There are some companies out there that were once venture-backed, such as American Superconductor, but clearly there are only so many venture capital opportunities there.

Fault detection and managing the grid are clearly areas where software innovation could make a difference.

3. What effect will the stimulus package have on the overall green economy?

Obama says that he wants to double renewable energy capacity over the next two years, but without stimulus or unusual action from the government, renewable energy would have gone up 25% to 40% anyway.

The stimulus package is not going to profoundly turn the tides. What can is a policy package. The expansion of the investor tax credit last year was crucial, for example.

4. What else could the government do which wouldn’t involve spending?

One answer is the European style of feed-in-tariffs at extremely attractive rates, as they did very wisely in Germany. They really proved to be effective there, and the same model would be effective here, too.

Also, another useful possibility is a specific debt government guarantee for renewable projects, where the government guarantees 50% or 100 percent. We have a lot of cleantech projects that are dependent on project finance. Making lending easier is the crucial step the government needs to take to catalyze rapid growth in this sector. It might not even cost the government anything in real cash, but it would easily allow the government to hit Obama’s renewable energy target.

5. What about cap-and-trade carbon policies?

I think a form of cap-and-trade will be implemented by the third year of Obama’s administration. It won’t be an initial success of legislation. Clearly, certain states are heading in that direction. That would be about a $100 billion minimum incentive for business to reduce carbon emissions.

We need to fairly apportion the cost that society is bearing for pollution, and cap-and-trade is a reasonable model of doing that. It will happen. We should anticipate it. But it won’t happen as fast as people think.