Part I, Picking the Winners
We are living in the Age of Uncertainty. Nobody knows how bad the economy really is or how long the pain will persist; nobody knows what type of stimulus package we need or whether a stimulus will actually work. And nobody knows where clean technology innovation is headed, given the current tumult in the capital markets.
Despite financing the future for hundreds of emerging growth companies over the past 25 years, I admit to not having all the answers today, at a time when that would be immensely helpful.
But I do know that the current stimulus package – with approximately $90 billion worth of energy-related spending and tax breaks – has the potential to boost certain sustainable industries and renewable energy sectors that have enormous job-producing potential, and that these good-paying and high-value positions will enhance economic growth both today and tomorrow.
An Extended Keynesian Injection
Unlike the New Deal stimulus, this 21st century eco-stimulus offers us an extended Keynesian injection because new green companies and new clean industries will be created from the ground up while existing – but still maturing – segments of the New Energy Economy will expand and extend their reach.
The businesses and sectors that stand to gain the most from Washington's legislative initiative will be the ones that can best harness public and private sector capital flows to generate a fairly quick payback. Every enterprise in the clean tech world is looking for stimulus money, but if you can't break even on a cash flow basis anytime soon, there's little sense in approaching lawmakers on Capitol Hill for financial aid.
Congress is still not officially signed off on the size and composition of the stimulus. So, my informal, conservative and real-time dollar break out, which is subject to change as legislators crunch the numbers, currently looks like this:
- Energy Efficiency and Transmission – $50 billion
- Renewable Energy Tax Credit Extensions – $13 billion
- Tax Breaks for Large-Scale Renewable Projects – $11 billion
- Energy Efficiency Improvement – $9 billion
- Renewable Energy Manufacturing – $1.4 billion
- Department of Defense Energy Upgrades – $4 billion
Yet even as the legislation is hammered out before going to President Obama for signing, it's possible to identify three potential winners that will have a tremendous economic – and job-creation – impact on the post-petroleum era.
First, the solar and wind power industries. These sectors are struggling today because debt funding and critical tax equity take-out financing has dried up; but I believe they could experience a reversal of fortune if Congress includes a refundable tax credit in the stimulus package (See Part II, following this story).
Amending the tax code in this way makes sense because the refundable tax credit would be a financeable arrangement and go directly to the solar and wind developers, who created a combined 30,000 new jobs in 2007 and 2008. With the right tax policies in place, the solar energy sector alone could create 440,000 permanent jobs and spur $325 billion in private investment by 2016, according to Navigant Consulting.
The second potential eco-stimulus winner will be the green building industry, which represents a mammoth opportunity and offers a powerful
long tail in terms of new employment possibilities.
Building for the Future
The numbers tell the story in a stark way here: There are currently 120 million homes, 5.1 million commercial buildings and legions of government office structures in the U.S. today. These structures account for approximately 40 percent of the nation’s carbon emissions and consume 60 percent of its raw materials, so if even a reasonable percentage of them were retrofitted and became more energy efficient and environmentally friendly, we’d be setting a major economic multiplier in motion.
The material science sector could especially benefit from a green building stimulus surge if it develops and markets products like clean cement and other building products; and the software industry could also prosper by creating automation services and systems to manage the homes, offices and buildings that are working toward greater energy efficiency.
A Jolt of Prosperity
The third stimulus beneficiary will be the nation’s outdated and outmoded electricity infrastructure, which needs to be upgraded with intelligent and breakthrough digital technology that will boost efficiency and reliability while lowering cost.
A number of skeptics talk about how daunting this overhaul would be. And they are right. The current electricity grid feels like a 19th century creation rather than a 21st century innovation. And it’s a jumble of fraying old wires, decaying transmission stations and antiquated analog equipment that is holding the nation’s global competitiveness back.
But this effort would be well worth it. A recent analysis by the Grid Wise Alliance reveals that $16 billion in smart-grid disbursements over the next four years would serve as the catalyst for projects worth $64 billion. These projects would create nearly 300,000 direct and high-value jobs between 2009 and 2012; and 150,000 of these positions would be established before the end of 2009. In addition, the Grid Wise report indicates that 140,000 indirect jobs would be generated between 2013 and 2018 as a result of smart-grid investment.
A Rising in the Valley
Smart grid innovation and infrastructure improvements would – in the same way as green building retrofits – help the software industry play a much-needed role in clean technology. And, with information technology hitting a plateau, Silicon Valley could reinvigorate itself by embracing a modernized electricity grid through two-way communications devices, smart meters and advanced control systems that take all the gathered energy information and manage it in real-time.
Franklin D. Roosevelt’s New Deal spending programs struggled to reverse The Great Depression for almost a decade, and it wasn’t until the United States geared up for the Second World War that the economy finally righted itself.
A New New Deal
I believe Barack Obama is more fortunate than Roosevelt because the nation is on the brink of a New Energy Economy today. If Congress and the new President choose eco-stimulus programs and policies wisely, we may see prosperous and peaceful new horizons sooner rather than later.
Michael Butler is Chairman and CEO of Seattle-based Cascadia Capital, LLC, a national investment-banking firm that is helping sustainable industries finance the future; Jamie Boyd is a senior vice president at Cascadia.
The above opinion piece is from independent writers and is not connected with Greentech Media News. The views expressed here are those of the authors and are not endorsed by Greentech Media.