Thursday, June 25, 2009

Clean Tech: Call It Like It Is! ............. (part 3 of 3)

This thread started by asking:

1) What's the problem with the term clean tech?

2) Why can't the intelligent, articulate, and passionate people who care about this issue come up with a better term?

3) Should we fix it, and if so, how?

I suggested that the term Clean Tech is confusing since it casually combines into a single "space" three need segments, each entailing distinct approaches, decision makers, and decision criteria:

1) For Efficient Resource Utilization (ERU), the need is likely to be met by the market: Good business rationale, solid ROI, acceptable payback.

2) The need for Lower-Impact Alternatives (LIA) may be met by the market: The switch to renewable sources presumably offers longer-term ROI; for the private sector to pursue it, some intervention through pricing and incentives may be necessary.

3) Finally, the need for Primary Demand Suppression (PDS) is unlikely to be addressed by the market: It entails significant sacrifice and change in behavior, and the payback may be quite distant; as a result, PDS often requires major government intervention, via regulation, taxation, or even shift in property rights.

Each of these three need segments could be met with some combination of solutions/approaches, such as:
  1. products (including software and service)

  2. information and open standards

  3. public policy (including incentives, regulation, education, advocacy, etc.)

The intersection of the need and solution dimensions creates a clear segmentation map, which I show below. To clarify these segments, I reviewed several alternative depictions of the clean tech space--such as the one from Khosla Ventures--and mapped them into my suggested segmentation. This is far from an exhaustive list of applications, but enough to give a sense of the range of possibilities:

Again, the story is quite clear: products and technologies are being funded and developed for ERU and LIA, but PDS won't get the same amount of pull--despite the popularity of "conservation" and "sustainable growth" sentiments.
Therein lies a possible explanation to a point which came up earlier: Why is the term CLEANTECH so confusing? The answer, of course, is that some groups believe that they have something to gain from this confusion. And who has anything to gain? Of course, advocates of Demand Suppression (PDS) may want to try to approach private investors (hoping to ride on the coattails of the ERU and LIA investment opportunities); at the same time, ERU and LIA advocates may want to associate themselves with the PDS crowd when they appeal to policymakers to support their agendas... So an unholy coalition is content with a murky definition of the space.

Is this just a theoretical discussion? Why should we care? Well, if we care about the overall importance of incorporating environmental thinking into our decisions, we should be VERY CAREFUL about such distinctions. As we're frequently reminded, economics and environment issues do collide ; for example, see discussion about real choices between LIA and PDS needs.

Recently the Environmental Business Cluster (where yours truly is a mentor to clean-tech start-ups) put together an excellent panel discussion on what it takes to make it in the clean tech space. I was struck by some insightful comments by Paul Douglas, Supervisor--Renewable Procurement and Resource Planning at the California Public Utilities Commission (CPUC). While all the goals in the cleantech space seem laudable, some are mutually exclusive; there's a need for regulatory clarity—meaning setting priorities, making choices, and deciding what not to do. For example, the CPUC is supposed to drive to high penetration of renewable energy: 33% by 2020 . But, if choices need to be made, which goal is primary: 33%? 2020? Energy costs? Market impact? Risk? "All of the above" is a nice answer, but a bit naive. In reality, regulators, entrepreneurs, and investors need to know: Which of these can be relaxed in order to accomplish a more-critical item on this list?

We'll get back to these questions in a few weeks; but let's get the foundation straight. To deal with these and related issues, we need to be very clear about the interplay of economic and environmental issues--starting with the very basic definitions of the space. And there's no way about it:

  1. CleanTech IS a confusing term

  2. It's not a coincidence!

  3. It can be fixed--and doing so will help to improve decision making in this critical space

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