In the last year, the venture capital industry has demonstrated a commitment to investing in the most innovative clean technology companies the country has to offer. In the first three quarters of 2007, investment of more than $1.6 billion in clean tech companies has already surpassed 2006 levels.
The enthusiasm and promise of this sector is reminiscent of the early days of venture investment in biotechnology, when venture capitalists began to build one of the most innovative and value-added industries in the country. Yet, the clean tech industry represents new territory for venture capitalists in many ways, particularly as it relates to public policy. For our industry to replicate our past successes, we must have the support of the federal government in promoting and encouraging innovation. In light of this, the National Venture Capital Association this year began an advocacy effort focused on clean technology policies.
It has been an active year for Congress in this regard. Since taking over the leadership in both chambers this year, House and Senate Democrats have sought to enact major legislation that alters the landscape of our nation’s energy policy, favoring renewable energy technologies over the traditional oil, gas and nuclear industries. To that end, both chambers have passed separate bills that promise to strengthen the nation’s energy independence, promote national security and combat global climate change. The bills are very comprehensive and combine the work of virtually every committee in the Congress. Both bills contain broad, albeit different, incentives and programs that impact virtually everything from agriculture to the electricity grid.
The following provisions, among many, are of interest to the venture capital community and are supported by the NVCA:
• The Renewable Portfolio Standard. Also known as the Renewable Electricity Standard, this provision in the House bill would require utilities to generate 15% of their power from renewable energy sources (i.e. solar, wind, geothermal, hydropower) by 2020, with some exemptions for publicly owned utilities and rural electric cooperatives. The RPS would establish a credit trading program and allow for up to 4% of the new mandate to be met by incorporating energy efficiency standards.
• Clean tech tax incentives. The House-passed bill also contains over $15 billion in tax incentives for clean tech initiatives, predominately funded by the roll back of tax breaks that the oil and gas industries currently enjoy. The bill expands the investment tax credits for solar energy and fuel cells by 30% and extends the production tax credit for wind, biomass, geothermal and some hydropower until 2012. The bill also establishes a new 50 cents-per-gallon production tax credit for cellulosic ethanol for 10 years, and creates new tax credits for new biodiesel production. NVCA has articulated the need for certainty in these tax incentives and has pressed Congress to enact with a longer term (six to eight), rather then one- or two-year extensions.
• ARPA-E. The NVCA has also supported the creation of a new Advanced Research Projects Agency for Energy. Similar to DARPA, an effort that resulted in many of the technology developments that spawned the Internet, ARPA-E would drive new energy technology R&D that the private sector is not in a position to undertake.
• Energy Efficiency. Provisions aimed at energy efficiency and updated “smart” electric grid technologies are included in both versions of the bills and enjoy strong, bipartisan support. There are also incentives aimed at green building and energy efficiency technologies and measures that encourage the federal government, as the largest user of energy, to become an early adopter of new energy technologies, thereby creating a large market for these products.
Both Houses of Congress are motivated to pass energy legislation as soon as possible. However, there are significant challenges to passage as each bill contains different provisions, some of which are quite controversial. Compromise is going to be critical to pass a bill that the President can sign. Throughout the continuing debate, however, one thing is certain: The NVCA will be committing time and effort to advocating for clean technology policies which promote innovation and new company formation.
Emily Baker is the Director of Federal Policy and Political Advocacy at the National Venture Capital Association. She may be reached at firstname.lastname@example.org.