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Government technology strategy shifting to hands-on approach

01 April 2010 #Environment

It has long been the policy of the UK government that the market should be self regulating, with as little intervention as possible.  This has also been true in supporting innovation in the environmental sector, although there are hints that this policy is starting to change.  By contrast the US government has, through its federal stimulus and ARPA-E program, channelled millions of dollars into environmental start-ups.  So much so that recently John Doerr, partner at Kleiner Perkins Caufield & Byers, stated that the government was now his favourite co-investor.  Whilst government stimulus has undoubtedly supported many companies that were starved of credit as banks tried to counter the financial downturn, it has also skewed the market considerably. 

The general consensus amongst investors in the cleantech sector suggests that they are wary due to regulatory and policy uncertainty.  Regarding the government`s policy on avoidance of picking winners within the sector, it is sending out mixed signals, which is one example of many that is causing this uncertainty amongst investors.  In direct contradiction to this policy, the government is actively backing certain sub-sectors, with offshore wind and carbon capture and storage being the current favourites.  This is demonstrated by the commitment to develop an offshore marine industry in the UK on the back of recent Round 3 licensing, investing public money in infrastructure.  Over £4 billion has been made available to carbon capture and storage to demonstrate the technology in an attempt to make the UK a world leader, with the initial competition excluding pre-combustion capture.  As a comparison, wave and tidal projects - for which the UK has the world`s best natural resources - recently received just £22m (just over 0.5% of money available for CCS).  As further evidence to the governments softening stance on not picking winners, this money was distributed by the Carbon Trust on behalf of DECC with the Marine Renewables Proving Fund to 6 projects from 31 applicants that it considered the ‘most promising`.  Additionally, the recent 2010 budget announcement of a £2 billion green investment bank showed that the trend continues, with the plan for capital deployment being concentrated in the areas of green transport infrastructure and offshore wind.

A recent report by the Carbon Trust also outlined that a move from technology neutrality to technology prioritisation for technologies that could have a maximum positive impact on climate change mitigation could be beneficial to the UK economy.  Though this may be the case, such a report and claim may have done more damage than good in creating further uncertainty for investors. As a result, some investors are reporting that they are withholding making investments in certain sub-sectors until these issues have been resolved as certain sub-sectors could benefit more than others. 

The public sector needs to ensure that a joined-up approach to incentivising investment in climate change is implemented to create a stable and consistent landscape that investors can depend on for the long term.  This should not only apply to communication within government departments, but also between governments that could potentially change every 5 years.  As the private sector is likely to have to contribute 85% of capital to prevent runaway climate change, it is the public sector`s duty, especially in the UK, which needs to play catch up to the likes of Spain and Germany, to create a stable policy and regulatory landscape for investors.

Taken from The EIC Environmental Investment Network.

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