Tuesday, April 30, 2013

Urgent: Seeking Collaboration between Green Think Tanks and Investors

The push for carbon trading is losing steam and the environmental groups are trying to figure out their next move.  At the same time, the green investors seeking federal grants for their solar/battery/e-car ventures are also facing an uphill battle.  Is environmentalism dead?

Far from it.  People still want a cleaner planet and more sustainable living, but the manner in which we have pursued that goal requires rethinking.  The past approaches have often pitted the environmental lobbies and the free-market capitalists on opposite sides of the table.  One wants more taxes, the other wants less.  One wants to create new bureaucracies, the other wants to eliminate them. One wants more laws, the other just wants free money.

This needs to change.  A comprehensive approach to climate change requires an alliance between all three principal stakeholders: business, government, and environmental groups.  Only a concerted approach can achieve better outcomes.  Since the political process takes its cues from the environmental and business groups, it would be immensely helpful if these two groups developed a common ground.  But how do they do that?

Common Goals.  Many differences separate the non-profit and for-profit approaches.  For example, some green lobbies believe that most of the necessary emissions reductions can be achieved with current technologies.  All we need are the right policies.  Investors, on the other hand, put more trust in business, financial and technology innovations, and believe that government intrusion actually skews this process.  We have seen how new government spending can entice short-term opportunists and special interests, and how the bureaucratic processes for allocating environmental credits can introduce elements of subjective arbitrariness.

We can perhaps all agree that a policy succeeds only to the degree that it supports market approaches for stimulating innovation and competitive entrepreneurship.  The government should not be writing checks or picking winners and losers, nor should it acquire more tax revenues for discretionary spending.  Even well intentioned bureaucracies will, over time, inevitably grow and amass influence.

Role of Government.  The government's role ought to be limited to setting aspirational goals (similar to improving EPA or NHTSA standards), rather than telling the society how to get there.  NHTSA sets auto mileage standards but does not tell Ford and GM what technologies they should use.  But when DOE allocates loans and grants to selected startups or technologies, it is dictating to the society what development path it should choose.  This is wrong; DOE financing activities should be limited to rule making and R&D.
As investors, we come across many breakthrough solutions that are ripe for global adoption.  But, the most deserving solutions – typically found in conservation, efficiency and recycling sectors – have been ignored by the investors.  Why?  There are some obvious reasons.  One, the government incentives shifted the focus of investors and entrepreneurs to areas like solar, wind, biofuels and electric cars.  Two, the traditional investment models do not work well in industrial sectors – a fact that is well recognized by investors who made losing bets on green startups and are now abandoning the sector. 

Innovation.  Our experience tells us that there is no dearth of good solutions; what we lack are innovative models for harnessing those solutions.  At WAVE, we are committed to finding solutions that will revolutionize massive global markets without imposing painful technology and capital risks.  In a short time, we already have great stories in American Aerogel and Green Conversion Systems.  Their potential impact on both financial and environmental fronts exceeds what is broadly perceived as possible.  More importantly, their adoption does not require a change in market structures, user behavior, or legislative frameworks.  It is free market economy at work, yet their progress is impeded by market imperfections such as misinformation, lack of visibility, and paucity of financing options. 

We see strong opportunity for collaboration between investors and environmental lobbies.  They can work together to educate the stakeholders, mitigating adoption hurdles that beset even those solutions that have received the imprimatur of selective markets.  Working together, they can embolden the conviction that environmental sustainability is desirable and achievable by proving that positive environmental impacts can be created at a massive scale without sacrificing financial returns or intensifying government intrusion.

Collaboration.  This collaboration can proceed on many fronts.  In the spirit of brainstorming, here are a few ideas:
·      An infrastructure bank that provides project capital to companies that produce profit with impact
·      An information clearing house that lists financially successful solutions, making information available in a way that foreign businesses can choose the most appropriate solutions to solve their problems
·      An educational effort to remove old fears based on outdated data (e.g. waste incineration is evil), and stamp out extreme positions (e.g. zero waste means we neither generate nor process waste)
·      New institutional arrangements that use the tax code (carrots, not sticks) to drive more investment toward sustainability (not just energy production and transportation), similar to REITs or MLPs
·      New platforms to induce broader collaboration between think tanks, policy makers, entrepreneurial companies and businesses

To provide meaningful ‘service to society,’ the public policy debate must emphasize and highlight facts, focusing on not only environmental harm, but also on successful impact solutions that are acceptable, affordable and financeable – today.  WAVE would love to provide those data points.  And we hope that the environmental groups would choose to use those data points to enrich and inform the policy debate.  Organizations such as the Kauffman Foundation, standing at the intersection of venture capital, entrepreneurship and policy, will have a useful role to play here.

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