The On-Again, Off-Again Green Economy, Part II

Posted: December 20th, 2009 by Militant Libertarian

What It Really Is and Where (and When) It Really Thrives

This is Part 2 of a 3-part series.


Enter the New Green Economy
Capitalists are again at the head of the (real) new green economy. While the politicians continue to take credit, create “initiatives” towards it, and so forth, the real green economy is happening in hotbeds of market capitalism like Silicon Valley and the wilds of Wyoming, Montana, and Nevada.

The buzz word for investors in Silicon valley is “cleantech.” It’s considered by most to be the great opportunity of the 21 st century. The idea is that with the rise in fossil fuel costs and the new societal push towards renewables, those who want to be wealthy need to supply this new demand.

As with any market, there are two sides to the cleantech economy: supply and demand. The supply side of the equation in energy is the creation of it while the demand side is the use of it. With cleantech, this means a clean, renewable way to create that energy and more efficient, better ways to use it.

The supply side, of course, is the “sexy” part that we see in the news all the time. This is the windmills, the solar farms, the algae production and so forth. The demand side is the smart grid, the Energy Star appliances, and improved transportation technologies.

The Supply Side of Green Energy
green business-bulbWhile both solar (PV) and wind energy have been around for quite a while, only wind has really gained any ground in the way of efficiency and realistic market production. Wind farms are becoming the investment type of choice in wide open spaces like Wyoming, Montana, the Dakotas, Nebraska and other plains states.

Solar, meanwhile, has a few years to go before a truly large-scale and marketable version can be utilized. This is mainly due to cost of facilities versus their output. On a smaller scale, solar is viable, but for megawatt production, solar has a long row to hoe in efficiency first.

The reality that the market realizes (even if the politicians don’t) is that it will be some decades before wind and solar can truly replace the current coal-burning production that primarily powers America. These plants, however, have a lot of room for improvement in themselves and have been undergoing those improvements for some time.

The average modern coal power plant, when built, required 3 pieces of coal to harness the energy of one piece for electricity production. When these plants were built, coal was cheap and inefficiency like this was acceptable. Over time, that’s become less and less so—even with the relatively low price of oil that seems to be the focus of all of this green debate. [1]

On top of that, researchers have also found that coal can be made “clean” in that it will emit much lower amounts of pollutants when burned if that coal has a low sulfur content. Much of the coal in America, especially the west, meets this criteria. Other improvements in plant upgrades and smokestack design have made strides towards improving efficiency greatly. [2]

By contrast, a wind farm can expect an average of 35% of maximum efficiency at any given time during a year. This means the largest waste in wind energy is facility to production costs: more towers must be built in order to make up for probable losses. [3]

However, until solar and other production methods can catch up, it’s likely that our economy will exist on a hybridized system of coal, wind, and natural gas for its energy production. While wind is gaining ground in percentage of production, it is not likely to replace coal anytime soon—if ever.

The Demand Side of Green Power
green_construcWhile the demand side includes some sexy, headline-getting things like electric cars and such, most of the goings-on in this side of the market are quiet and relatively unnoticed. It’s on this side, however, that the biggest strides are being made in improving the green economy.

In fact, energy usage nationally has dropped considerably. The Energy Information Administration (EIA) shows that there was a 4.3% drop in energy usage when March 2009 is compared to March 2008. While many factors are included in this number, not the least of which is the economy as a whole, it’s still telling. [4]

Consumer awareness is one of the biggest strides in effecting how energy efficiency is utilized in the market. As consumers become aware of what that light switch and that appliance are doing, they become more likely to consider how to automate or maximize the efficiency they can gain.

With technology improvements, the belief 30 years ago that in order to “go green” you had to sacrifice your lifestyle and live in a cave has gone. Today, all modern conveniences can be had while being almost completely eco-friendly.

This is where the demand market enters and begins to make improvements. Residential solar, wind, and other power-harnessing supplies are sold, but smaller things that generally go unnoticed such as improved insulation, better appliance technologies, more efficient vehicles, and technologies that work with these improvements to further improve them, are all there.

Gadgets to improve a current vehicle’s efficiency are common, as are automated thermostats for homes, improved airflow fans and air circulators, and more are storming the market.

Most of these improvements aim at transportation and building technology. And with good reason too.

About half the energy consumed in the U.S. goes into buildings: constructing, heating/cooling, and lighting them.

The Funding for the Green Economy
In 2008, cleantech funding in venture capital was behind only IT and biotechnology, which are traditionally the largest venture markets. A total of about $5.8 billion was put into cleantech startups and businesses.

In fact, even upstarts in Washington understand this as many are seeing the Department of Energy (DOE) as the NASA of the 2000s. In the 60s, everyone wanted to work for NASA. Now, it’s the DOE.

While that might be laudable, and it fits with the political push from the White House and Congress towards emphasizing “green,” it’s still government and not the private sector–which produces innovation at a much faster and sustainable pace than government ever has. [5]

In fact, government only innovates in two fields: warfare and taxation. In all other things, private enterprise is where innovation takes place. This is best exemplified by the comparison of green energy innovation in the U.S. versus Europe.

While European governments have heavily subsidized and even paid for green energy production. Denmark, Germany and Spain all went to the forefront of government spending on alternative energy sources such as wind and solar. Very little of that money, however, was used to fuel innovation.

Just looking at dollar figures, the Europeans (plus Israel) spent about $1.8 billion in venture capital for research and development in 2008 while that number was $5.8 billion in the U.S. Very little new technology emerges from Europe when compared to the amount produced by U.S. innovation. [6]

The problem with government funding is that not only does it tend to pick and choose which techs to back (as illustrated by the Obama administration cutting funding to hydrogen research from the DOE’s budget) with little regard as to which is better, but it’s also often quite fickle.

The boom-and-bust cycle of renewable energy production in the 1980s and 1990s were almost entirely due to the fact that government subsidized, removed subsidies, reinstated them, and then pulled them again.

A perfect example of how government funding can create one phenomenon while ignoring another—which private ventures do not—with the consequence being that the government-funded phenom takes credit for the private innovation, is the Internet.

president-al-goreAfter Al Gore invented it, the scientists and universities who were utilizing the fledgeling Internet did so largely on government funding. In its infancy, it was hard to use, difficult to manage, and often unreliable.

As computers improved, the Internet also did, but not without government funding and many problems with the basis of the ‘Net as a whole. Small improvements in how it was used, presented, and how the infrastructure behind it operated were had, but overall it was stymied by the relative lack of innovation in the one portion of the Internet that held the real keys to its power.

That was telecommunication technology, which suddenly saw a huge amount of innovation and upgrading as the private sector realized the demand for better communications technologies. As the infrastructure rapidly improved and technologies leaped ahead to facilitate faster communication, the Internet suddenly became viable as a medium for more than just trading term papers and studies.

Enter the marketing enterprise and the capitalists. From there, the Internet blossomed as improved communications technologies allowed the ‘Net to become available in homes and offices—not just universities. It exploded to become what it is today. All within a relatively short amount of time—less than two decades.

Yet most of the credit for the Internet is given to the universities and scientists who began it rather than to the entrepreneurs who made it into something that’s part of all of our everyday lives. [7]

What is needed for the green economy is a partnership between government and the capitalists. These partnerships are rarely successful, usually because one side or the other will try to use the other’s powers to get what they want. However, if both sides stick to what they’re best at doing and leave the other alone, a real partnership that is in everyone’s common interest could result.

In other words, if government sticks to taxes (one of the two things it’s truly good at) and capitalists stick to innovation and the rolling out of new technologies (it’s shining point), the partnership could work.

This was originally published on Aaron’s EnvironMental Corner.  Part 3 will publish tomorrow.


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